FORMATIVE ASSESSMENT 1 [100 MARKS] Read the case study and answer the questions that follow: ORBIT LIMITED: FINANCIAL PERFORMANCE AND FORECASTING The mission of Orbit Limited is to achieve is vision by providing an innovative product and creative customer experienoes. Ir's talented staff are guided by the values, social conscience and customer-centric mindset espoused by the board of drectors. At the core of Otbit Limited is its customers. The company is commitied to sucoessful growth by delivering excellent service to its customers to whom it offers qualty and value. It is for these reasons that Orbit Limied was able to achieve success in the marketplace. However, the management has identfied the need to improve in certain respects. The following are the financial statements for the past two years: In addition to the above, the following intormation is avalable: Al sales and purchases of inventory are on creat. invertares on 31 Decenber 2020 amounted to R1 500000 . Credit terrms of 5/10 net 90 days are granted by credtors. Credi lerms of 60 days are granted to debtars. Dividends declared for the years ended 31 December 2021 and 2022 anounted to R1169280 and R1 422000 respectively. The financial manaper of Orbe Limied provided the following forecasts for 2023 : Ssies are estimuled at 8000 unis with a seling price of R1 800 aach. The manufacturing costs incude direct materials of R460 pet unit, drect labour of R315 per unt, varable overheads of R170 per unit and fixad overheads of R880 000. Flxed seling and administration costs are estimated at R2000000 and the variable seling costs are estimated to be 75% of saies. The drectors are contemplaing diversfication in 2024 by entering the passenger transport market. This could be achieved through the purchase of a feet of midi buses hat are expected to cost R9 500000 . An additional R500 000 will be spent on inport duties. The cost of cperating the buses each year is expected to be R4 100000 and the annual revenues from transporting the passengers are esfimated at R7 000000 . The buses are expected to have a total salvage value of R1 000000 and the estinuted usetul ille of the buses is fve years. The company's cost of capial is expedied to reduce t15%. Deprecition is calculated using the straight-line method. REQUIRED 1.1 Calculate the horesse in the solained eamings over the two-year period. (2 mons) possible reason for the change. (9) maks) 13. Comment on the investing activtes of the congany. (4 maks) 1.4 Carcalase the amount that would be relecled as Changes in working captar in the Slatement of Cash Flows for the year ended 31 Decemiter 2022 (4 maks) 15 Winout making use of ary ratios, provide an interpecation of the following over the hasyear period. 1.5.1 Invertories (4 marks) 1.5 .2 Accounts receivable (4 maks) 1.6 Caloulase the cost (as a percentage) of not accepting diacoumb form ovelion in setilement of accounts. (4 maks) QUESTION 2 (25 Varks) REQUIREO Calculate the approgriabe nobs (expressed to two decimal places) and provide an internutation of your answers for each of the folowing over the two-year peried 21 The eflectiveness of the company regarding the managoment of as accourts payable. (5 marsi) 22 The ability of the company to wetie ts short tem debts under distress condtions (4 mavs) 23 The percentage of the prota that has been retained in the company. (4 mans) 24 The profiability of the company from the point of view of the sharchoiders. (4 mars) 2.5 A messure of the eticiency with which the bolal assets of compary are muraged. (4 mars) 26 The eflectiveness of the credi administation of the compary in respect of ts customens REQUIRED Reler to the forecasts made by the financial manager for 2023 and caloulate the following independently. As fat as possible, use the contribution margin format of the income statement to present your answers. 3.1. Break-even quantty. (5 marks) 3.2 The sales value required to mave an operating proft of R2016 000, by using the contribution margin ratio. (5 marks) 3.3 The percentage change in the operating profe (expressed to two decimal places), if the seling price and fixed costs increase by 10%. (5 marks) 3.4 The total Contribution Margin and Operating Proteloss if the sales volume is 10% below expectasion. (5 marks) 3.5 The selling price per unit (expressed in rands and cents) that will enable the company to break even. (5 marks) QUESTION 4 (25 Marks) REQUIRED Refer to the planned diversification for 2024 and calculate the following: 4.1 Payback Period (expressed in years, morths and days) (3 marks) 4.2 Accounting Rate of Retum on inibal invesiment (expressed to two decimal placos) (5 manks) 4.3 Net Present Value (6 maks) 4.4 Internal Rate of Retum using interpolation (expressed ib two decimal places). (6 marks) 4.5 Internal Rate of Return using interpolation (expressed is two decimal places) if there were no import dufies and no salvage value