A. Explain the purpose of capital in the enterprise.

B. Distinguish between real capital, financial capital and risk capital.

C. Discuss the interrelationship of firm capital and firm risk

D. Evaluate the objectives of minimizing the cost of risk.

E. Explain the components of the cost of risk

RSK4803 ASSIGNMENT 6 2020 Question 1 [20 Marks) (3 Marks) a Explain the purpose of capital in the enterprise (9 Marks) b. Distinguish between real capital, financial capital and risk capital c. Discuss the interrelationship of firm capital and firm risk. 18 Marks) Question 2 [15 Marks] a. Evaluate the objectives of minimising the cost of risk. (3 Marks) (12 Marks) . Explain the components of the cost of risk. Question 3 [15 Marks] TARGET CASH AND CARRY (PTY) LTD (TARGET) Target is a food, general and household goods retailer located in Eldoraigne, Centurion and has been in operation for 15 years. The business Target sells food, general and household goods and also operates a bakery and butchery in the shop. A small section of the premises is sub-let to a lock and key business. The financial manager indicated that Target is expecting annual growth of 8% per annum from 2017 after the upgrade of the kitchen and butchery. Target has a long-term lease agreement for the premises, which will expire at the end of 2030. The outlay of the shop can be compared with its competitors i.e. Spar, Checkers and Pick n Pay. Concerns and current insurance policy The store experienced significant business interruption events recently and approached the insurance broker to advice on updating the business interruption section of an existing policy. The CRO insisted on having the policy updated early in the new financial year, which will be on 1 January 2017. The MPL (Maximum Potential Loss) is assessed as the total loss resulting from a potential fire that destroys the entire premises/business. The renewal date of the insurance policy coincides with the financial year. The Plant Machinery, Stock and Contents are insured under a Fire Section, and the Business Interruption section follows the Fire section. Reinstatement can take up to 12 months, with business normalisation potentia another 6 months, so one should consider at least an 18-month indemnity period Calculate the total estimated business interruption coverage amount based on the financial statements below. Show all your calculations. Audited financial statements The financial statements are presented below [TOTAL: 50 MARKS] 2 TARGET CASH AND CARRY (PTY) LTD STATEMENT OF FINANCIAL POSITION AS AT 201612/31 Notes 2015/12 201612/31 Non-Current Assets Property, plant and equipment Loans to directors R 1640 944 R 2105 277 R 1 772 712 R 4161 390 R 542 R3706 221 Current Assets Inventores Trade and other receivables Current tax receivable Cwh and cash equivalent R3 663 872 R 1 321 089 R 340 R3116 756 R 743082 R 340 R 33 340 R 4985 301 R 8 731 522 Total Assets R 9828 272 Equity and Liabilities Share capital and reserves Share capital Retained income R 100 R 909 191 R 909 991 R 100 R 915 948 R 917 048 Liabetes Non-Current Liabilities Other financial abilities Deferred tax R1 803 739 R447 452 R2251 191 R 2541 768 R 417389 R2959157 Current Liabilities Trade and other parties Other financial abilities Bank overdratt R5 309 923 R 642 164 R 4343 289 R 1 010 351 R 206 700 R151560 340 R 7811531 RB 721 522 R5952057 R8911 244 R 9 828 292 Toties Total Equity and Liabilities STATEMENT OF COMPREHENSIVE INCOME 12 MONTHS ENDED 2015/12/31 20161231 Notes Revenue Sale of goods R 69 039 371 R 93 823 318 -R 57 740 988 R 11 298 335 -R 81 429 350 R 12 393 959 Cost of sales Purchases Gross profit Other Income Rental income Interest received Gains on disposal of assets R 14 010 R3767 R 131 042 R 148 819 R 7089 R 9756 R 16 845 R 83 448 R 40 017 R 5 206 R 711 698 R58 141 R 144 195 Operating expenses Accounting fees Advertising Bad debts Bank charges Cleaning Computer expenses Consulting fees Depreciation, amortisation and impairments Donations Employee costs Electricity and water General expenses Insurance Lease rentals on operating lease Legal expenses Levies Motor vehicle expenses Petrol end oil Postage Printing and stationery Repairs and maintenance Royalties and license lees Security Stal welfare Telephone and fax Travel-local R 89 867 R 19 587 R 23 497 R 624 043 R 37 894 R 92 354 R 40 250 R 350 564 R 28 399 R 5 167 616 R 1323 380 R 41 917 R 172329 R 922 435 R 40 981 R 101 529 R 76 288 R 84 802 R7 819 R 17 497 R 377 506 R 773 306 R 328 438 R200 101 R 55 110 R 74 230 R 11 071 739 R 375 465 -R 351 817 R 23 648 -R 30 705 -R 7 057 R 424 349 R 40 130 R 4 869 760 R 1 604 388 R 88 686 R249 896 R 1 146 742 R 40 250 R 99 564 R 95 607 R 134 097 R8 756 R21 581 R 749 631 R 759 294 R 335 008 R 304 771 R 78 844 R 87 391 R 12 181 950 R 228 854 -R 218 319 R 10 535 -R 4597 R5938 Operating profit Finance costs Profit before taxation Taxation (Loss) profit for the year Other comprehensive income Total comprehensive (loss) Income for the year -R 7057 R 5938 Retained nome R 911 010 R5938 Total R 911 110 RS 938 STATEMENTS OF CHANGES IN EQUITY Share capsa Balance 014010 100 Pront for the your Other comprehensive income Total comprehensive income for the year Balance 201501/01 100 Loss for the year Other comprehensive income Total comprehensive oss for the you Balance at 2016/12/31 100 RS 90 R916 948 -R 7057 R6938 R 917 043 -R 7057 -R 7057 R 909 891 -R 7057 R 909 91 STATEMENT OF CASH FLOWS Notes 12 MONTHS ENDED 2015/12/31 20161231 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash (used in genered from operations Interest income Net cash from operating activities R 69 183 758 -R 70 674 275 -R 1 490 517 R3767 -R 1 486 750 R 94 157 962 -R 93 924 428 R 243 534 9,7513 253,290 1 -R 192023 Cash flows from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Loans to group companies repaid Sale of financial assets Net cash from investing activities -R 331 250 R 243 496 1 R 795 200 R 1 390 000 R 1 992 577 -R87 754 Cash flows from financing activities Nel movement on financial liabilities Repayment of members loan Finance lease payments Net cash from financing activities -R 369 832 R2 056 113 -R 351 817 R 1334 464 R 1 204 775 -R 3 940 661 -R 218 319 -R2 954 205 Total cash movement for the year Cash at the beginning of the year Total cash at end of the year -R 240 040 R 33 340 -R 206 700 -R 708 338 R 741 678 R 33 340 1. PROPERTY PLANT AND EQUIPMENT COST CARRYING VALUE ACCUMULATED DEPRECIATION Leasehold property Plant and machinery Furniture and fies Motor vehicles R 40 209 R3 617 666 R 890 701 R 348 524 -R 2 419 329 -R 520 473 -R 184 586 R 40 209 R 1 198 337 R 370 228 R 163 938 R 1772 712