HYBRID LIMITED IS Well known for its focus on innovation and this is highlighted in the company$$s mission statement. Their website tells a story of profitability, growth and a customer$-$centred approach. This, combined with the excellent quality product offered, has contributed to its leadership in the marketplace. Planning is a key to the success of its operations.

The following reflects some of the planning initiatives that were made for $2024$:

The estimated monthly sales of the only product sold by Hybrid Limited is $75000$ units. The product costs R$10\mathrm{.}80$ per unit. The annual storage cost per unit is expected to amount to $10\%$ of the cost price. The ordering cost is estimated to be R$15$ per order. Once an order is placed with the manufacturer it takes ten days for the product to be manufactured. It is anticipated that the products will then be delivered to Hybrid Limited two days later. The products will be purchased on credit. The manufacturer$$s credit terms are $30$ days but a discount of R$2700$ will be received on each order if the account is settled in $10$ days$$ time. Hybrid Limited expects to operate for $250$ days

The directors of Hybrid Ltd intend expanding the company and they have the choice of investing in one of two projects at the start of $2025$ viz. Project A or Project B$.$ Each project is expected to have a five$-$year life, with only Project A having a residual$/$scrap value of R$300000.$ The annual cash inflows from each project are estimated at R$3100000.$ The company desires a minimum rate of return of $14\%.$

Project A is anticipated to cost R$4800000$ excluding R$300000$ for installation. The annual cash outflows are estimated to be R$1300000$ for year one. These cash outflows are expected to increase by R$100000$ per year thereafter. Depreciation is estimated to be R$960000$ per year.

Project B cost is expected to cost R$5100000$ including R$400000$ for installation. The annual cash outflows are estimated to be R$1500000.$ Depreciation is estimated to be R$1020000$ per year

QUESTIONS

$1.$ Refer to the planning initiatives for $2024$ and calculate the following:

$1\mathrm{.}1$

Economic order quantity

$(5$ marks$)$

$1\mathrm{.}2$

Re$-$order point.

$(4$ marks$)$

$1\mathrm{.}3$

Cost $($as a percentage to two decimal places$)$ of forfeiting the cash discount on each order. $($Assume a $360-$day year.$)$

$(5$ marks$)$

$2.$

Refer to the investment opportunities for $2025$ and calculate the following. Ignore taxes. Use only the four decimals present value tables that appear after question $2\mathrm{.}3.$

$2\mathrm{.}1$

Accounting Rate of Return on average investment of Project B $($expressed to two decimal places$).$ Note: Profit per year $=$ Net cash flow per year $$ Depreciation per year

$(5$ marks$)$

$2\mathrm{.}2$

Net Present Value of both projects.

$(6$ marks$)$

$2\mathrm{.}3$

Internal Rate of Return of Project B $($expressed to two decimal places $)$ using discount rates of $17\%$ and $18\%$ only. Your answer must include two net present value calculations and the determination of the IRR.

$(5$ marks$)$

Number

of

Periods

$1\%2\%3\%4\%5\%6\%7\%8\%9\%10\%11\%12\%13\%14\%15\%16\%17\%18\%19\%20\%25\%$

$10\mathrm{.}99010\mathrm{.}98040\mathrm{.}97090\mathrm{.}96150\mathrm{.}95240\mathrm{.}94340\mathrm{.}93460\mathrm{.}92590\mathrm{.}91740\mathrm{.}90910\mathrm{.}90090\mathrm{.}89290\mathrm{.}88500\mathrm{.}87720\mathrm{.}86960\mathrm{.}86210\mathrm{.}85470\mathrm{.}84750\mathrm{.}84030\mathrm{.}83330\mathrm{.}8000$

$20\mathrm{.}98030\mathrm{.}96120\mathrm{.}94260\mathrm{.}92460\mathrm{.}90700\mathrm{.}89000\mathrm{.}87340\mathrm{.}85730\mathrm{.}84170\mathrm{.}82640\mathrm{.}81160\mathrm{.}79720\mathrm{.}78310\mathrm{.}76950\mathrm{.}75610\mathrm{.}74320\mathrm{.}73050\mathrm{.}71820\mathrm{.}70620\mathrm{.}69440\mathrm{.}6400$

$30\mathrm{.}97060\mathrm{.}94230\mathrm{.}91510\mathrm{.}88900\mathrm{.}86380\mathrm{.}83960\mathrm{.}81630\mathrm{.}79380\mathrm{.}77220\mathrm{.}75130\mathrm{.}73120\mathrm{.}71180\mathrm{.}69310\mathrm{.}67500\mathrm{.}65750\mathrm{.}64070\mathrm{.}62440\mathrm{.}60860\mathrm{.}59340\mathrm{.}57870\mathrm{.}5120$

$40\mathrm{.}96100\mathrm{.}92380\mathrm{.}88850\mathrm{.}85480\mathrm{.}82270\mathrm{.}79210\mathrm{.}76290\mathrm{.}73500\mathrm{.}70840\mathrm{.}68300\mathrm{.}65870\mathrm{.}63550\mathrm{.}61330\mathrm{.}59210\mathrm{.}57180\mathrm{.}55230\mathrm{.}53370\mathrm{.}51580\mathrm{.}49870\mathrm{.}48230\mathrm{.}4096$

$50\mathrm{.}95150\mathrm{.}90570\mathrm{.}86260\mathrm{.}82190\mathrm{.}78350\mathrm{.}74730\mathrm{.}71300\mathrm{.}68060\mathrm{.}64990\mathrm{.}62090\mathrm{.}59350\mathrm{.}56740\mathrm{.}54280\mathrm{.}51940\mathrm{.}49720\mathrm{.}47610\mathrm{.}45610\mathrm{.}43710\mathrm{.}41900\mathrm{.}40190\mathrm{.}3277$

$60\mathrm{.}94200\mathrm{.}88800\mathrm{.}83750\mathrm{.}79030\mathrm{.}74620\mathrm{.}70500\mathrm{.}66630\mathrm{.}63020\mathrm{.}59630\mathrm{.}56450\mathrm{.}53460\mathrm{.}50660\mathrm{.}48030\mathrm{.}45560\mathrm{.}43230\mathrm{.}41040\mathrm{.}38980\mathrm{.}37040\mathrm{.}35210\mathrm{.}33490\mathrm{.}2621$

$70\mathrm{.}93270\mathrm{.}87060\mathrm{.}81310\mathrm{.}75990\mathrm{.}71070\mathrm{.}66510\mathrm{.}62270\mathrm{.}58350\mathrm{.}54700\mathrm{.}51320\mathrm{.}48170\mathrm{.}45230\mathrm{.}42510\mathrm{.}39960\mathrm{.}37590\mathrm{.}35380\mathrm{.}33320\mathrm{.}31390\mathrm{.}29590\mathrm{.}27910\mathrm{.}2097$

$80\mathrm{.}92350\mathrm{.}85350\mathrm{.}78940\mathrm{.}73070\mathrm{.}67680\mathrm{.}62740\mathrm{.}58200\mathrm{.}54030\mathrm{.}50190\mathrm{.}46650\mathrm{.}43390\mathrm{.}40390\mathrm{.}37620\mathrm{.}35060\mathrm{.}32690\mathrm{.}30500\mathrm{.}28480\mathrm{.}26600\mathrm{.}24870\mathrm{.}23260\mathrm{.}1678$