+ Laurel Ltd. has just started a business with capital of 9,000. The following budgeted information is available: Sales Purchases Sept Oct Nov 20,000 55,000 70,000 15,000 27,000 40,000 Sales will be 40% cash less a 10% discount for prompt payment; all remaining sales are on one month's credit, and it is expected that 5% will go bad. Purchases are cash. Rent of 6,000 is payable quarterly in advance. Wages of 3,000 per month are paid in the month incurred A loan of 4,000 will be taken out on 1st September Depreciation is 1,500 per month. A van will be purchased for 11,000 in October 3a) Prepare a cash budget for the three months September, October and December. (type in this box) 14 marks 3b) With reference to your month end balances, advise the management of Laurel Ltd. on how they should improve their cash management. (type in this box) 3ci) For a cost to be relevant, it must have three qualities. What are they? (type in this box) 8 marks 3 marks 3cii) 5 marks Explain the meaning of 'opportunity cost' and give an example. (type in this box) Explain the meaning of a 'sunk cost' and give an example. (type in this box) 3d) Laurel Ltd. intends to buy a new machine. The machine costs 20,000, has an estimated scrap value of 2,000 and will last 3 years. Included in the 20,000 it the cost of report written last year about Machine A, it cost 5,000 to produce the report. Laurel Ltd. uses an 8% discount rate Additional net operating cash inflows are: Year 1 5,000 Year 2 6,000 Year 3 9,000 i) Calculate the Net Present Value for the machine. (type in this box) 10 marks i) Calculate the payback period for the machine. (type in this box) ii) Calculate the Accounting Rate of Return for the machine. (type in this box) 3ei) Explain why the Net Present Value method is often seen as the best method of capital investment appraisal. 3f) Discuss two non-financial (qualitative) considerations Laurel Ltd. should make when buying a new machine. Consideration 1: 4 marks 6 marks i) Calculate the payback period for the machine. (type in this box) ii) Calculate the Accounting Rate of Return for the machine. (type in this box) 3ei) Explain why the Net Present Value method is often seen as the best method of capital investment appraisal. 3f) Discuss two non-financial (qualitative) considerations Laurel Ltd. should make when buying a new machine. Consideration 1: 4 marks 6 marks Present Value of 1 Discount table At rate 'r' 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Period (after n years) 1 0.900 0.980 0.971 2 0.980 0.961 0.982 0.043 0.925 0.907 0.952 0.943 0.935 0.800 0.873 0.928 0.917 0.909 0.857 0.842 0.820 3 0.971 0.942 0.915 0.889 0.864 0.840 0.810 0.704 0.772 0.751 0.901 0.924 0.888 0.855 0.823 0.792 0.783 0.735 0.708 0.683 0.951 0.900 0.863 0.822 0.784 0.747 0.713 0.081 0.650 0.021 6 0.942 0.888 0.837 0.790 0.740 0.705 0.000 0.630 0.598 0.564 7 0.933 0.871 0.813 0.780 0.711 0.923 0.853 0.789 0.731 0.677 0.914 0.837 0.700 0.703 0.665 0.623 0.583 0.627 0.582 0.540 0.645 0.592 0.544 0.500 0.460 0.547 0.513 0.502 0.467 0.424