ASSIGNMENT 6: ACCOUNTING AND FINANCIAL MANAGEMENT QUESTION 1 1.1. Differentiate in detail between primary and secondary markets. 1.2. Discuss in detail the difference between money markets and capital markets (20) (10) (10) QUESTION 2 (20) 2.1. Consider two projects whose cash inflows are not even. Assume that the project costs R190 000. The net cash inflows for each year is as follows: Year Project B R30 000,00 R35 000,00 R62 000,00 R75 000,00 R100 000,00 R105 000,00 Project C R95 000,00 R85 000,00 R50 000,00 R20 000,00 REQUIRED 2.1.1 Calculate the payback period of each project and recommend which project should be selected based on the payback period. (6) 2.2. Glens Ltd has a choice of investing in one of the two projects. The following details relate to these projects: Project A Project B R75 000 6 years 12% R75 000 6 years 12% Investment required Expected Economic lifetime Minimum required return of return Net annual cash inflows 1st year 2st year 3st year 4st year 5st year 6st year R20 000,00 R20 000,00 R25 000,00 R24 000,00 R30 000,00 R32 000,00 R24 000,00 R24 000,00 R24 000,00 R24 000,00 R24 000,00 R24 000,00 REQUIRED 2.2.1 Use the Net Present Value method to determine which project Glens Ltd should choose. 2.2.2 Assume the initial outlay has increased to R95 000. Calculate the internal rate of return for Project B. (6) (8) (20) QUESTION 3 Dulux Limited manufactures and sells only one product. The budgeted details for 2019 are as follows: No. of units sold. 160 000 Selling price per unit R3,00 Variable cost per unit R1,60 Total fixed costs. R1 450 000 REQUIRED 3.1 Calculate the total marginal income and budgeted net profit (loss) for 2019. 3.2 Calculate the breakeven quantity and value. 3.3 Suppose Dulux Limited wants to make provision for 10% increase in fixed costs and an increase in variable costs by RO.20 per unit. Taking these increases into account, calculate the following: 3.3.1 New breakeven quantity and value. 3.3.2 Safety margin as a percentage. 3.3.3 The number of units that need to be sold to earn to earn a net profit of R600 000. QUESTION 4 4.1. Answer the questions based on the following information. Income tax is calculated at 35% of profit. (20) Lisas Fashion Tees Fashion R 2018 2018 2017 2017 380 000,00 620 000,00 490 000 180 000,00 165 000,00 95 000 Operating Profit 500 000,00 Profit after tax 220 000,00 Non-current debt 10% p.a 250 000,00 Equity 900 000,00 Note: The enterprise has no current liabilities. 120 000,00 850 000,00 950 000 350 000 890 000,00 400 000.00 REQUIRED 4.1.1 Calculate the return on net assets of both enterprises for 2018. 4.1.2 Calculate the return on equity of both enterprises for 2018. 4.1.3 Which enterprise is more profitable? Explain. 4.1.4 Should Lisas Fashion be satisfied with its return on assets? Explain. 4.2 In 2018, Jaggers Wholesalers had R3 000 000 Assets, R500 000 current liabilities and R600 000 non-current liabilities. Operating profit was R400 000, interest expense was R150 000 and the tax rate was 40%. REQUIRED Calculate and comment on the following ratios: 4.2.1 Debt to assets. 4.2.2 Debt to equity. 4.2.3 Interest coverage. MANCOSA: POSTGRADUATE DIPLOMA IN BUSINESS MANAGEMENT QUESTION 5 Technopak Limited supplies components for smartphones. REQUIRED Use the information provided below to: 5.1 Prepare debtors collection schedule for April and May 2019 5.2 Prepare cash budget for April and May 2019. Note: Where applicable, round off all amounts to the nearest to the nearest Rand INFORMATION The following figures are available: Sales Purchases Sales Commission Wages January 96000 100000 400 800 Actual 2019 February 120000 50000 600 800 March 60000 160000 1200 800 Estimated 2019 April May 160000 200000 84000 60000 800 400 40% of all sales are for cash 25% of all purchases are cash Collections for credit sales are as follows: 20% is collected in the month of the sale and 2% discount is granted on these collections. 60% is collected in the month following of sale. 15% is collected in the second month following the month of sale The remaining 5% is written off as bad debts 1. Technopak Limited will make an investment of R50 000 in fixed deposit on 1 April 2019. Interest of R18 000 per month is expected to be received from 30 April 2019. 2. Creditors are paid 2 months after the date of invoice 3. Rent expense amounts R4 500 per month and is payable on the first day of each month. 4. Wages will be increased by 10% in April 2019 and will increase by a further 5% in May 2019. 5. A new machine is expected to be purchased for R12 000 cash in May 2019. 6. Commission is paid on sales personnel in the month following the month in which it was earned. 7. On 31 March 2019, Technopak Limited had a bank overdraft of R28 000. Assignment format Your assignment should include a Table of Contents page and a bibliography. Text: Arial or Times New Roman (12); Spacing 1% lines. All text must be justified at each margin. Where applicable, use formats and formulas from your study guide. Start each question on a new page. Number each solution according to the numbering in the assignment handbook. You may make use of a spreadsheet (e.g. Microsoft Excel) to assist you only with the construction of tables and formats. Solutions generated by software packages will not be marked. No marks will be awarded if only the final answers are given. All relevant workings/steps must be shown. ASSIGNMENT 6: ACCOUNTING AND FINANCIAL MANAGEMENT QUESTION 1 1.1. Differentiate in detail between primary and secondary markets. 1.2. Discuss in detail the difference between money markets and capital markets (20) (10) (10) QUESTION 2 (20) 2.1. Consider two projects whose cash inflows are not even. Assume that the project costs R190 000. The net cash inflows for each year is as follows: Year Project B R30 000,00 R35 000,00 R62 000,00 R75 000,00 R100 000,00 R105 000,00 Project C R95 000,00 R85 000,00 R50 000,00 R20 000,00 REQUIRED 2.1.1 Calculate the payback period of each project and recommend which project should be selected based on the payback period. (6) 2.2. Glens Ltd has a choice of investing in one of the two projects. The following details relate to these projects: Project A Project B R75 000 6 years 12% R75 000 6 years 12% Investment required Expected Economic lifetime Minimum required return of return Net annual cash inflows 1st year 2st year 3st year 4st year 5st year 6st year R20 000,00 R20 000,00 R25 000,00 R24 000,00 R30 000,00 R32 000,00 R24 000,00 R24 000,00 R24 000,00 R24 000,00 R24 000,00 R24 000,00 REQUIRED 2.2.1 Use the Net Present Value method to determine which project Glens Ltd should choose. 2.2.2 Assume the initial outlay has increased to R95 000. Calculate the internal rate of return for Project B. (6) (8) (20) QUESTION 3 Dulux Limited manufactures and sells only one product. The budgeted details for 2019 are as follows: No. of units sold. 160 000 Selling price per unit R3,00 Variable cost per unit R1,60 Total fixed costs. R1 450 000 REQUIRED 3.1 Calculate the total marginal income and budgeted net profit (loss) for 2019. 3.2 Calculate the breakeven quantity and value. 3.3 Suppose Dulux Limited wants to make provision for 10% increase in fixed costs and an increase in variable costs by RO.20 per unit. Taking these increases into account, calculate the following: 3.3.1 New breakeven quantity and value. 3.3.2 Safety margin as a percentage. 3.3.3 The number of units that need to be sold to earn to earn a net profit of R600 000. QUESTION 4 4.1. Answer the questions based on the following information. Income tax is calculated at 35% of profit. (20) Lisas Fashion Tees Fashion R 2018 2018 2017 2017 380 000,00 620 000,00 490 000 180 000,00 165 000,00 95 000 Operating Profit 500 000,00 Profit after tax 220 000,00 Non-current debt 10% p.a 250 000,00 Equity 900 000,00 Note: The enterprise has no current liabilities. 120 000,00 850 000,00 950 000 350 000 890 000,00 400 000.00 REQUIRED 4.1.1 Calculate the return on net assets of both enterprises for 2018. 4.1.2 Calculate the return on equity of both enterprises for 2018. 4.1.3 Which enterprise is more profitable? Explain. 4.1.4 Should Lisas Fashion be satisfied with its return on assets? Explain. 4.2 In 2018, Jaggers Wholesalers had R3 000 000 Assets, R500 000 current liabilities and R600 000 non-current liabilities. Operating profit was R400 000, interest expense was R150 000 and the tax rate was 40%. REQUIRED Calculate and comment on the following ratios: 4.2.1 Debt to assets. 4.2.2 Debt to equity. 4.2.3 Interest coverage. MANCOSA: POSTGRADUATE DIPLOMA IN BUSINESS MANAGEMENT QUESTION 5 Technopak Limited supplies components for smartphones. REQUIRED Use the information provided below to: 5.1 Prepare debtors collection schedule for April and May 2019 5.2 Prepare cash budget for April and May 2019. Note: Where applicable, round off all amounts to the nearest to the nearest Rand INFORMATION The following figures are available: Sales Purchases Sales Commission Wages January 96000 100000 400 800 Actual 2019 February 120000 50000 600 800 March 60000 160000 1200 800 Estimated 2019 April May 160000 200000 84000 60000 800 400 40% of all sales are for cash 25% of all purchases are cash Collections for credit sales are as follows: 20% is collected in the month of the sale and 2% discount is granted on these collections. 60% is collected in the month following of sale. 15% is collected in the second month following the month of sale The remaining 5% is written off as bad debts 1. Technopak Limited will make an investment of R50 000 in fixed deposit on 1 April 2019. Interest of R18 000 per month is expected to be received from 30 April 2019. 2. Creditors are paid 2 months after the date of invoice 3. Rent expense amounts R4 500 per month and is payable on the first day of each month. 4. Wages will be increased by 10% in April 2019 and will increase by a further 5% in May 2019. 5. A new machine is expected to be purchased for R12 000 cash in May 2019. 6. Commission is paid on sales personnel in the month following the month in which it was earned. 7. On 31 March 2019, Technopak Limited had a bank overdraft of R28 000. Assignment format Your assignment should include a Table of Contents page and a bibliography. Text: Arial or Times New Roman (12); Spacing 1% lines. All text must be justified at each margin. Where applicable, use formats and formulas from your study guide. Start each question on a new page. Number each solution according to the numbering in the assignment handbook. You may make use of a spreadsheet (e.g. Microsoft Excel) to assist you only with the construction of tables and formats. Solutions generated by software packages will not be marked. No marks will be awarded if only the final answers are given. All relevant workings/steps must be shown