MIDLANDS STATE UNIVERSITY

FACULTY OF BUSINESS SCIENCES

DEPARTMENT OF ACCOUNTING SCIENCES

DEVELOPMENT FINANCE

CODE: BF 434

SESSIONAL EXAMINATIONS

APRIL/ MAY 2023

DURATION: 3 HOURS

INSTRUCTIONS TO CANDIDATES

1 The paper cancistc of S quectinns

2. Answer all questions in section A and any 3 in section
3. Each question carries 25 marks.
4. Make and state any reasonable assumptions made in
answering the question
5. Non- programmable silent financial calculator maybe
used.
6. The paper has 3 pages

Page 1 of 3
 SECTION A-COMPULSORY

QUESTION ONE

Webmasters.Com has developed a powerful new server that would be used for corporations'
interne activities. It would cost $10 million to purchase the equipment necessary to manufacture
the server, and $3 million net operating working capital wouldbe required. The servers would
sell for $24 000 per unit, and Webmasters believes that the variable costs would amount to $17
500 per unit. The company's fixed costs would also rise by $1 million per year. Conditions are
1 expected to remain stable during each year of the operating life; that is, unit sales, sales price,
and costs would be unchanged. The project would have a life of 4 years. The equipment would
be depreciated for five years on a straight line method. The estimated market value of equipment
at the end ofthe project's life is $500 000. Webmaster's corporate tax rate is 40% and capital
gainstax is 5%. The cost of capital is 10%. The equipment's economic life is five years and
would be fully depreciated over that period.
•
Required:

a) Estimate the project's cash flows for capital budgeting on a time line over 4years.
[6marks]

b) Calculate the project's Net Present Value (NPV), Internal Rate of Return (IRR), Modified
Internal Rate of Return (MIRR), Payback and Discounted Payback.
[10marks]
C) Shouldthe project be accepted? [2 marks]
d) Evaluate the importance of Project evaluation in project management in development
finance [7 marks]
[Total: 25 marks]

S1CTION B- ASWER ANY 3 QUESTIONS

• QUESTION TWO

a) Explain why financial markets in LDCs are underdeveloped?[6 marks]

II) What do you think needs to be done to develop LDC financial markets? [7 marks]
a) Discuss the advantages and disadvantages of foreign bank entry in developing countries.
12 marks]

[Total : 25 marks]
QUESTION THREE
a) Discuss the influence of international development finance institutions (IDFIs) in
i promoting capital markets development and access to development finance by
emerging market economies [13 marks]

Page 2 of 3
 b) The Infrastructure development bank of Zimbabwe (IDBZ) is the major player in the
financing of development in Zimbabwe. Give an overview of major projects financed by
this institution and explore their impact on the local communities. [12 marks]

[Total :25 marks]

QUESTION FOUR
Assess the impact of international trade performance on the Zimbabwean banking sector

[Total : 25 marks]

QUESTION FIVE
Examine the PPP (Public Private Partnership) model of financing infrastructure projects
focusing on funding arrangements, the parties involved and advantages and disadvantages.
Examples of such projects should be given from your country. [25 marks]

[Total : 25 marks]

*END OF PAPER*

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