Instructions: All answers must be typed in and all workings must be shown.

QUESTION TWO Mr Pat decided to start his own manufacturing business. He needed a total of R150 000 as the initial capital but he only had R120 000 available. He approached a local bank to provide him with a loan for the balance of the capital. The local bank's lending rate was 25 % per annum. The bank was pleased with Mr Pat's credit rating and decided to lend him the balance of the capital in the form of a private loan. Mr Pat used the borrowed capital and his own capital to purchase machinery and a motor vehicle to start his business. This amounted to R100 000. The remaining finance was used for operational expenses. The net profit at the end of the first year of business amounted to R50 000. Mr Pat ensured that all payments were made on time. Required: 2.1 Explain the amount of own capital in relation to total capital used in the business. 2.2 Explain the extent to which borrowed capital has been used in relation to total capital. 2.3 Discuss the implications of the private loan taken from the local bank as against an overdraft at the rate of 30 %. 2.4 Discuss the profitability of the enterprise as a result of the R50 000 net profit earned after the first year