FINAL ONLINE SUMMATIVE ASSESSMENT PROGRAMME Bachelor of Business Administration Honours Postgraduate Diploma in Business Management Postgraduate Diploma in Family Business Management MODULE Accounting and Financial Management INTAKE January 2023 DATE 24 November 2023 [100 MARKS] Answer all questions in this paper [100 Marks] QUESTION 1 (20 Marks) REQUIRED Study the Statement of Cash Flows given below and answer the following questions: 1.1 Calculate the amount paid out for company tax. (3 marks) 1.2 Did the company obtain funds from its financing activities? Motivate your answer with the relevant calculations. (3 marks) 1.3 Of what significance are the details of Westham Limiteds investing activities to a potential investor? (4 marks) 1.4 Write a report to the board of directors to provide an interpretation of the Statement of Cash Flows of Westham Limited for the year ended 31 December 2022. Your report must focus on the cash flows from operating activities, increase in inventory, increase in receivables, increase in payables and purchase of plant and equipment. (10 marks) INFORMATION The Statement of Cash Flows of Westham Limited for the year ended 31 December 2022 appears below: WESTHAM LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022 R Cash flows from operating activities (540 000) Operating profit 2 850 000 Non-cash flow adjustment: Depreciation 1 058 700 Profit before working capital changes 3 908 700 Working capital changes (2 424 000) Increase in inventory (2 400 000) Increase in receivables (1 800 000) Increase in payables 1 776 000 Cash generated from operations 1 484 700 Dividends paid (1 200 000) Company tax paid ? Cash flows from investing activities (6 900 000) Purchase of plant and equipment (6 900 000) Cash flows from financing activities ? ? ? Net increase (decrease) in cash ? Cash balance (31 December 2021) 9 600 000 Cash balance (31 December 2022) 2 100 000 QUESTION 2 (20 Marks) REQUIRED Use the information provided below to answer the following questions. Note: Use formulas provided in the formula sheet only (that appear after QUESTION 5). Answers to the ratios must be expressed to two decimal places. 2.1 Calculate the percentage profit on sales after the cost of sales only have been accounted for. (2 marks) 2.2 Has the liquidity of the company improved? Use two relevant ratios to motivate your answer. (6 marks) 2.3 Use the relevant ratios to comment on the effectiveness with which the company has employed the inventory and debtors during 2022. (6 marks) 2.4 Use TWO (2) appropriate ratios that shareholders would use to assess the profitability of the company for 2022 by examining the after-tax returns earned. Comment on your calculations. (6 marks) INFORMATION Extracts of the financial statements of Ultra Limited are presented below: ULTRA LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 R Sales (90% on credit) 8 800 000 Cost of sales 4 000 000 Operating profit 2 400 000 Profit after tax 1 400 000 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: 2022 (R) 2021 (R) Non-current assets 6 800 000 5 600 000 Inventory 380 000 300 000 Trade and other receivables (Accounts receivable only) 520 000 460 000 Cash and cash equivalents 320 000 400 000 Shareholders equity 5 000 000 3 800 000 Non-current liabilities 2 400 000 1 900 000 Current liabilities 620 000 1 060 000 Additional information The authorised share capital of the company consists of 1 500 000 ordinary shares of which 1 000 000 have been issued. QUESTION 3 (20 Marks) 3.1 REQUIRED Study the information provided below and answer the following questions: 3.1.1 If the sales managers proposal is rejected, calculate the total revenues at break-even by using the contribution margin ratio. (4 marks) 3.1.2 Calculate the additional expenditure that the company can afford to spend on advertising, in keeping with the sales managers proposal. (4 marks) 3.1.3 Calculate the break-even quantity if the sales managers proposal is accepted (using the proposed new selling price and the increase in the advertising outlay). (4 marks) INFORMATION Denel Enterprises manufactures a product that sells for R180 each. The company presently produces and sells 120 000 units per year. Unit variable manufacturing expenses and variable selling expenses are R90 and 10% of the sales price respectively. Fixed costs are R4 536 000 for manufacturing overheads and R1 944 000 for selling and administrative activities. The sales manager has proposed that the price be increased to R216 per unit. To maintain the present sales volume, advertising must be increased. The companys profit objective is 10% of sales. 3.2 REQUIRED Study the information given below and answer the following questions independently: 3.2.1 If Dundee Limited wants to achieve an operating profit of R972 000, calculate the target sales value without using the contribution margin ratio. (4 marks) 3.2.2 Based on the expected sales volume, what sales price per unit will allow the company to break even? (4 marks) INFORMATION Dundee Limited is analysing whether its new product will be profitable. The following data is based on expected sales of 40 000 units: Variable manufacturing costs R3 840 000 Fixed manufacturing costs R1 200 000 Fixed marketing and administrative costs R420 000 The expected selling price is R150 per unit. QUESTION 4 (20 Marks) REQUIRED Use the information provided below to answer the following questions: 4.1 Calculate the weighted average cost of capital (calculations expressed to two decimal places, where applicable). (16 marks) 4.2 Calculate the cost of equity using the Gordon Growth Model (expressed to two decimal places). (4 marks) INFORMATION Capri Limited intends raising finance for a proposed new project. The financial manager has provided the following information to determine the present cost of capital to the company: The capital structure consists of the following: 2 million ordinary shares issued at R2 each but currently trading at R3 each. The companys beta coefficient is 1.4. The risk-free rate is 9%. The return on the market is 17%. 1 million 12%, R2 preference shares with a market value of R3 per share. R1 000 000 20% Bank loan, due in January 2026. Additional information The Capital Asset Pricing Model is used to determine the cost of equity. A dividend growth of 10% per annum on ordinary shares was maintained over the past five years. The latest dividend paid was 80 cents per share. Assume that the company tax rate is 28%. QUESTION 5 (20 Marks) Note: Where applicable, use the present value tables provided in APPENDICES 1 and 2 that appear after the formula sheet. REQUIRED Use the information provided below to answer the following questions: 5.1 Calculate the Payback Period of the first alternative (expressed in years, months and days). (3 marks) 5.2 Calculate the Accounting Rate of Return on initial investment of the first alternative (expressed to two decimal places). (4 marks) 5.3 Based on the Net Present Value, which alternative should be chosen? Why? (Show the calculations of the present values as well as the net present values.) (8 marks) 5.4 Calculate the Internal Rate of Return (expressed to two decimal places) of the first alternative. Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. (5 marks) INFORMATION The management of Torga Limited is considering two investment opportunities: The first alternative involves the purchase of new machinery for R1 200 000 which will enable the company to modernise its production facility. The machinery is expected to have a useful life of five years and no salvage value is anticipated. On the day Torga Limited purchases the new machinery, it would also pay the supplier R60 000 for installation costs. The modernisation is expected to increase efficiency, resulting in a reduction in annual cash operating expenses of R380 000. The second alternative involves purchasing a truck. The truck costs R1 200 000. Its useful life is expected to be five years and a salvage value of R300 000 is anticipated. Operating the truck will necessitate an increase of R60 000 in the companys working capital base immediately upon buying the truck. The working capital cash outflow is expected to be recovered at the end of the trucks useful life. The truck is expected to generate R730 000 per year in additional cash revenues. The drivers salary and other cash operating expenses are expected to be R360 000 per year. Torga Limited desires a rate of return of 12%. The straight-line method of depreciation is used. Ignore taxes. TOTAL: 100 MARKS END OF PAPER FORMULA SHEET