53 2 54 Kabelo and Hendrik are joint owners of Fitness Gym. They are currently investigating the option of investing in cryotherapy, a cold therapy that may reduce inflammation in tendons or joints. Their investment would provide Fitness Gym members with equipment which may be used to reduce post- exercise recovery times at an additional cost. The addition of cryotherapy to the gym represents a strategic service for Fitness Gym. Which one of the following statements reflect the importance of capital investment projects such as the example above? 1 The relative magnitude of the amounts involved The short-term nature of capital investment decisions 3 The operational nature of capital investment projects 4 The direct effect of the time value of money on capital investment projects Kabelo and Hendrik have to draw up a new budget to accommodate their investment in cryotherapy. The projected sales for use of the new equipment serves as the point of departure for the budgeting process. In addition, they will use the previous year's actual income and expenditures as a basis. This is known as budgeting 1 traditional zero-based forecasted 4 annual Whilst drawing up the budget for the coming year, Kabelo decides to determine the break-even point for new cryotherapy equipment. The fixed cost per year to maintain the cryotherapy equipment amounts to R165 000. Kabelo estimates that the variable cost per session will be around R30. If Kabelo and Hendrik decides to charge gym members R280 per session, how many sessions will they need to sell they want to break-even? 1 589 2 532 3 660 4 The break-even point cannot be calculated given the information above. 3 56 [PLEASE TURN OVER CONFIDENTIAL Page 1 of 21 56 Alter much planning and deliberation, Kabelo and Hendrik decides to base their decision on investing in cryotherapy on the net present value of the investment they would have to make in order to purchase the cryotherapy equipment for Fitness gym. Their calculations determine that the NPV for the cryotherapy equipment is R365 234. This means that Kabelo and Hendrik must 1 2 3 4 contact a business consultant to assist with better decision-making Crnelia reject the project and develop a new proposal accept the project and install the new equipment as soon as possible delay their decision until more information becomes available