UNIVERSITY EXAMINATIONS
DEPARTMENT OF CIVIL ENGINEERING
Module code: FIM3701
Module name: Civil Engineering Financial Management
Total mark: 25
Assignment due date: 18 August 2023 (Assignment 1)
Module lecturer: Mr Mohale LM
This Assignment consists of 3 pages. Excluding cover page.
Instructions:
Honor Pledge: I have neither given nor received aid on the assignment.
Plagiarism is the act of taking words, ideas and thoughts of others and presenting it
as your own. It is a form of theft which involves a number of dishonest academic
activities.
• Answer all questions
• Write clearly using black ink
• Space your work out adequately
• Read the questions carefully
• Pay careful attention to the allocated marks
Goodluck!
1. Select only the statement that are true: (2)
A. Companies with well diversified portfolios of projects should only be concerned
with the market risk as quantified by the Beta coefficient of the portfolio.
B. One method of incorporate risk into a capital budget is to use a risk-adjusted
discount rate.
C. None of the other statements/options is correct.
D. It is impossible to reduce diversifiable or unsystematic risk by adding more
projects to a portfolio.
2. Select only the statement that are true: (2)
A. Approval of projects can be delayed or even cancelled because of the financial
situation in a country.
B. Economic feasibility and efficiency are two economic objectives of the
engineering design process.
C. None of the other statements/options is correct.
D. Procurement cost is just one of a number of costs that form part of life cycle cost.
3. Select only the statement that are true: (2)
A. The effects of inflation are removed when the real interest rate is used.
B. None of the other statements/options is correct.
C. R1000 today, in 2021, will in two years’ time, in 2023, have the power to
purchase goods worth R950 today, if a constant inflation rate of 5% applies.
D. Inflation increases the purchasing power of money.
4. Select only the statement that are true: (2)
A. When dealing with very complex issues, models are often used to simplify the
situation by focusing on a few essential variables.
B. Earnings per share can be calculated by dividing the total earnings available to
the company`s stockholders by the number of common stock outstanding.
C. None of the other statements/options is correct.
D. The higher the risk associated with a project or a corporation the lower the
required expected return by investors would be.
5. Select only one of the five options below. Thabo owns a motor car. The life
cycle cost includes: (2)
A. The cost of putting petrol into the car from time to time.
B. The purchasing price of the car.
C. The cost of replacing the car’s tyres every few thousand kilometres.
D. The cost of maintaining the car (taking it for services).
E. All the statements are correct.
6. Select only the statement that are true: (2)
A. None of the other statements/options is correct.
B. The minimum acceptable rate of return (MARR) for a project is usually less than
the company’s cost of capital.
C. Companies (and governments) with high levels of debt are considered riskier by
lenders and they usually demand higher interest rates from them.
D. If the income of companies with high levels of debt is affected by events such as
natural disasters and lockdowns due to Covid-19, then they are less likely to pay
interest on loans and repay debt (compared to companies with much lower levels of
debt).
7. Use the information in the provided balance sheet to calculate the debt ratio
of Mokoena Trading at 28 January 2022. (3)
Mokoena Trading
Balance Sheet (in millions)
Jan 31, 2022 Jan 31, 2021
Cash and cash equivalent 4700 4312
Account receivables, net 4433 3650
Inventories 456 327
Total current assets 16587 10900
Total assets 21215 17899
Total current liabilities 14136 10800
Long term debt 505 566
Total liabilities 13730 13444
Common stock 8200 6890
Retained earnings 9120 6122
Total stockholders’ equity 5455 5233
8. Use the above information to calculate the current ratio of VERMAX at 31
January 2020. (3)
VERMAX
31-Jan-20
Assets (millions)
Current assets:
Cash 4232
Shirt term investments 406
Account receivables 2566
Inventories 340
Other 1394
Total current assets 8938
Property, plant and equipment 912
Long-term investments 5233
Other noncurrent assets 344
Total assets 15427
Liabilities (millions)
Account payable 5900
Accrued and other 2944
Total current liablitites 8844
Long-term debt 506
Other 1158
Total liabilities 10508
9. Select only the statement that are true: (2)
A. All projects with a positive NPV should always be accepted and implemented if
funds are limited.
B. None of the other statements/options is correct.
C. A project with a positive NPV is economically feasible.
D. A project with an NPV of less than 0 should be rejected.
10. Select only the statement that are true: (2)
A. The simple payback period does not consider the time value of money.
B. The payback period is an indicator of risk.
C. None of the other statements/options is correct.
D. The payback period is the estimated time it will take for the estimated revenues
and other economic benefits to recover the initial investment at a stated rate of
return.
11. Select only the statement that are true: (2)
A. The IRR of a service project can be calculated.
B. The IRR of a revenue project can be calculated.
C. None of the other statements/options is correct.
D. Two service projects that are compared by a decision-maker generate the same
revenue (have the same positive income), but their negative cash flows are different.
12. Define the term “Nett Present Value” (NPV) (1)
Assignment 1 Total = 25 marks
