QUESTION ONE

Sungura Janja Ltd. is a highly geared construction company based in Ruvuma. The company
is planning to acquire new earthmoving equipment at a cost of TZS.100 million and is
considering the following alternative sources of finance:

A bank loan for the full cost of the equipment, repayable over four (4) years in equal annual
instalments and interest at a rate of 5% per annum. The first instalment is to be paid one year
from the date of taking out the loan.
The equipment would have no residual value at the end of the period of four years.
REQUIRED:
Calculate the annual instalment that would be payable under the bank loan and prepare a loan
amortization schedule showing the interest and principal in each repayment for the four (4)
years.

QUESTION TWO

(a) From a financial standpoint, the value of money changes with time so a TZS.5,000,000
now and a TZS.5,000,000 three years later is not the same. It is a concept known as the
time value of money. The implication is that, lapse of time comes along with many
economic factors which affect value attached to money.
REQUIRED:
(i) Explain any three (3) importance of the time value of money concept. (6 marks)
(ii) Describe any three (3) features of future value. (6 marks)
b) Zangie Real Estate Co. is considering selling an apartment property that it owns. A buyer
is willing to pay TZS.200 million for the property, all of which would be paid to Zangie
upfront (today). Given the unpredictable market conditions, besides selling the property,
Zangie is considering the following other three alternatives:
I. The property can generate a constant cash inflow stream of TZS.15
million per year forever with the first receipt occurring one year from now.
II. The property can generate a cash inflow of TZS.15 million one year from
today and thereafter, this amount will continue growing at a constant rate
of 3% per year forever.
III. The property can generate a constant cash inflow of TZS.15 million per
year for ten years with the first receipt occurring one year from now.
Thereafter it will generate TZS.30 million per year forever.

Zangie’s cost of capital is 10%.

REQUIRED: Advise Zangie Real Estate Co. on the best course of action to take given
the three alternatives relative to selling the property today. (8 marks)
QUESTION THREE

Jack Shephard wishes to save money to provide for his retirement beginning one year
from now. He will begin depositing the same face amount each year for the 30 years
into a retirement savings account. Starting one year after making his final deposit, he
will withdrawal TZS.3,000,000 annually for each of the following 25 years (i.e. he will
make 25 withdrawals in all). Assume that the retirement funds earn 10% annually over
both the period that he is depositing money and the period he makes withdrawals.
REQUIRED:

In order for Jack Shephard to have sufficient funds in his account to fund his retirement,
how much should he deposit annually? (rounded to the nearest figure).