A firm aims to achieve a return on investment (ROI) of 25%. Compile a pro forma statement of financial performance and statement of financial position based on the budgeted figures below: The marketing department estimates the firm can achieve the following sales:

Probability

Sales

50%

R36 066 880

50%

R44 500 620

The marketing department limits marketing expenses to 5% of sales. The credit department aims to limit bad debt to 2% of sales. The cost of goods sold is 50% of sales. HR has been provided with the guideline of limiting salaries and HR expenses to 25% of sales. Courier and delivery expenses are expected to not exceed 1,5% of sales. Other operating expenses (in Rands) are estimated to be the following:

Bank charges

21 587

Consultations

120 000

Depreciation

2 092 000

External service providers

48 000

Fuel

321 000

Insurance

920 000

Internet expenses

12 000

Leased equipment

62 500

Legal costs

225 000

License and fees

18 400

Non-capitalised equipment

22 000

Printing

18 000

Property rentals

186 000

Refreshments & entertainment

28 000

Repairs & maintenance

16 000

Stationery

22 000

Telephone

6 200

Toll fees

3 300

Training & Development

28 000

Travel & subsistence

18 400

Water, electricity, sanitation

72 400

The firm estimates it will have to pay R12 000 in interest. The tax rate is 28% of the earnings before tax.

The financial manager has also prepared the following projections (in Rands):

Non-current assets:

Land & buildings

8 200 900

Equipment

6 250 000

Vehicles

4 210 000

Current assets:

Cash

320 000

Accounts receivable

1 900 000

Inventory

1 450 000

Shareholder interest:

Ordinary shares

9 550 000

Retained earnings

4 082 500

Long-term debt

5 383 500

Current liabilities:

Accounts payable

3 250 000

Accruals

150 000

Required

a) Determine the expected earnings after tax. (5 marks) b) Determine the amount of financing required. (5 marks) c) If the firm aims to limit the debt ratio to 50%, how much of the new financing should be equity finance and what amount long-term borrowing? (5 marks) What could the firm do to improve its current ratio to 2:1? (5 marks)