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FINANCIAL PROJECTIONS AND CAPITAL EXPENDITURE OF ELSIES LIMITED Elsies Limited is a nationally recognised supplier of catering equipment. It offers safe and secure shopping via

FINANCIAL PROJECTIONS AND CAPITAL EXPENDITURE OF ELSIES LIMITED
Elsies Limited is a nationally recognised supplier of catering equipment. It offers safe and secure shopping via its online store and its state-of-the-art premises in each of the provinces of South Africa. The company offers a wide selection of catering equipment and supplies at competitive prices. The target market includes restaurants, hotels, hostels and spaza shops. Their products carry an industry-leading warranty that is backed by good after-sales service and availability of spares. The company was established in 2015 with an authorised share capital of 1500000 ordinary shares of which 900000 were issued at R2 each at the initial public offering in 2015.
The financial manager and her team were in the process of forecasting the financial performance for 2024 and financial position of the company as of 31 December 2024. The starting point was the following figures that were obtained from the financial statements for the year ended 31 December 2023:
The sales amounted to R9600000, and the cost price of the goods sold was R7200000. Operating expenses totaled R1200000 whilst the company tax amounted to R336000. The carrying value of the fixed assets was R4200000 whilst the inventories, trade debtors and cash reflected values of R1200000, R1800000 and R600000 respectively. The ordinary share capital balance remained unchanged since the establishment of the company in 2015 whilst the undistributed profits of the company accumulated to R2100000. An amount of R2400000 was owed to Jip Bank for a long-term loan. The amount owed to trade creditors was R1467000 and the company tax payable to SARS was R33000.
The following predictions were made for the financial year ended 31 December 2024:
Sales are expected to increase by 25%. Seventy-five percent (75%) of the total sales is estimated to be on credit. Company tax will be calculated at 27% of the pre-tax profit and 10% of this amount is expected to be unpaid on 31
December 2024. A final dividend of R400000 is expected to be declared on 31 December 2024, and is payable during 2025. The unsold shares are expected to be issued on 31 March 2024 at R3 each. The amount owed by trade debtors will be based on a collection period of 54.75 days. The companys closing inventory and the amount owed to trade creditors are expected to change directly with the change in sales in 2024. A new machine with a cost price of R700000 will be purchased during January 2024. Depreciation for 2024(included in the operating expenses) is expected to amount to R300000. R760000 will be paid to Jip Bank during 2024 and this amount includes R360000 for interest. The cash balance must be calculated (balancing figure).
Elsies Limited is considering the purchase of a machine to manufacture some of the spare parts for the catering equipment during 2025. The company desires a minimum required rate of return of 12%. The machine will cost R2000000 plus R400000 for installation and is predicted to have a useful life of five years. A salvage value of R100000 is estimated. The machine is expected to generate cash inflows of R800000 per year but will require the employment of two new machine operators at R100000 per year for each operator, and it will require maintenance and repairs averaging R40000 per year. Depreciation will be calculated using the straight-line method.
QUESTION 1
Prepare the following pro forma statements:
1.1 Statement of Comprehensive Income for the year ended 31 December 2024 using the
percentage-of-sales method. (4)
1.2 Statement of Financial Position as of 31 December 2024.
QUESTION 2
Refer to the investment opportunity for 2025 and calculate the following. (Ignore taxes.) Where discount factors are required, use the four decimals present value tables that appear in the module guide.
(14)
2.1 Accounting Rate of Return on average investment (expressed to two decimal places).(3)
2.2 Benefit Cost Ratio (expressed to two decimal places).
2.3 Internal Rate of Return (expressed to two decimal places). Your answer must reflect two NPV (4)
calculations (using consecutive rates/percentages) and interpolation. (5)

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