1 (100 Marks) Review the case study provided below and then answer the questions that follow using the templates provided and explanations where needed. Contemporaray Research (CR) is an retail research organisation that provides business intelligence services to organisations in the retail sector. Market research has indicated a demand for business intelligence services of R600 million, ineasing by at least 25% per year. CR is considering launching a digital research service on 1 January 2022. The company's strategic forecasting horizon is three years. You have been asked to assist with cash flow forecasting for CR to provide for the introduction of the new service. The following information is available: The company's existing services have created high brand equity through client loyalty and sales have grown steadily over the past years. With the introduction of the digital research services, CR becomes a full-service agency and the synergistic value eated by the new division is expected to result in a once-off inease in traditional research pacakeges of 50 units, over and above the normal 10% growth rate of traditional research sales. Thereafter all CR sales volumes are expected to grow at a rate of 10% per year. (Note: This increase is based on what the 2021 sales would have been without the additional revenue from the 50 units) CR expects to complete 120 digital research projects in 2022, increasing by 15% thereafter. The average fee for a digital project is estimated to be R350 000. Traditional projects are currently in 2021 achieving average revenue of R1,6 million per project. CR's historical revenue is as follows: Traditional advertising Sales projects 2021 2020 2019 440 projects 400 projects 300 projects The gross margin for traditional projects in 2022 is expected to be 25% with digital projects expected to achieve a gross margin of 40% in 2022. Important note: this is gross margin, not mark-up on cost. The marketing budget for both services (in total) is R22 million in 2022. Of this, 40% is to be allocated to marketing the new digital products. CR's variable costs consist primarily of staff costs. Salaries for traditional research staff are expected to continue to increase by 8% per year. Digital research staff are to be hired in 2021 at the start of the new venture. Because their initial salaries were much higher than those offered by the market, their salaries are only expected to increase by 7% per year. Project fees income and all expenses other than staff costs are budgeted to increase annually by the inflation rate of 4%. During 2021 R6 million has been spent on the establishment of the new service. These establishment expenses will be capitalised over three years and are tax deductible. The company's WACC is 19%. The corporate tax rate is 27%. QUESTION 1.1 (10 MARKS) Forecast the demand (number of projects) for each of the years (2022, 2023 and 2024) for CR's traditional advertising service. Use the template provided below Traditional projects base Traditional projects additional Traditional projects total 2022 2023 2024 QUESTION 1.2 (25 MARKS) Using your answer from Question 1.1 above, forecast the total contribution for the company (after marketing expenses have been considered) for the next three years (2022, 2023 and 2024). Use the template provided below Traditional projects Average fee (per project) Variable cost (per project) Contribution per project Number of projects Total contribution (before marketing expenses) Digital projects Average fee (per project) Variable cost (per project) Contribution per project Number of projects Total contribution (before marketing expenses) Total contribution Marketing expenses Total contribution 2022 2023 2024