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Class test 5 pre-work - This is used in IAS 282 an actuarial science module at TUKS/UP during second
Course: Actuarial Science (IAS 282)
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University: University of Pretoria
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Financial Mathematics 282
Class Test 5 pre work
Date: 2 September 2022
Question 1 [7 Marks]
You are an actuary at BigInsurers Ltd. The CEO wants to grow our market share by acquiring a
smaller competitor, TechInsurers Ltd. We will purchase TechInsurers for R80 million. After
conducting some research, you see that after the purchase, we will incur the following expenses
starting immediately:
• Monthly salaries totalling R2 000 000, payable in arrears. This will increase by 10%
every 5 years.
• Office and other administrative expenses of R1 000 000 per annum, payable quarterly in
advance.
You expect the income in the first year to be R30 million, payable continuously. This is
expected to increase by R5 million each year thereafter for a total of 4 increases, after which it
remains constant. Consider only the cashflows that occur in the first 10 years of operation after
acquisition for this analysis. The CEO asks you to calculate the IRR for this acquisition.
[Hint: 𝑖 ∈ (15%, 20%)]
END OF TEST
IAS282 – Financial Mathematics – Class Test - Page 1 of 1
