ORBITLIMITED:FINANCIALPERFORMANCEANDFORECASTING

ThemissionofOrbitLimitedistoachieveitsvisionbyprovidinganinnovativeproductandcreativecustomerexperiences.Itstalentedstaffareguidedbythevalues,socialconscienceandcustomer-centricmindset espousedbytheboardofdirectors.AtthecoreofOrbitLimitedisitscustomers.Thecompanyiscommitted to successfulgrowthbydeliveringexcellent service toitscustomersto whom itoffersqualityand value.ItisforthesereasonsthatOrbitLimitedwasabletoachievesuccessinthemarketplace.However,themanagement hasidentifiedtheneedtoimproveincertainrespects.Thefollowingarethefinancialstatementsforthepast twoyears:

OrbitLimitedStatementofFinancialPosition asat 31December:20222021RRASSETSNon-currentassets118100007 560000Property,plant andequipment100250006250000Investments17850001310000Currentassets41900004690000Inventories18750002350000Accountsreceivable19250002200000Cash390000140000Totalassets1600000012250000EQUITYANDLIABILITIESEquity??Ordinaryshare capital54800003680000Retained earnings??Non-currentliabilities45000003800000Loan(20%p.a.)45000003800000Currentliabilities23000001500000Accounts payable23000001500000

Totalequityandliabilities1600000012250000

StatementofComprehensiveIncomefortheyearended31December:20222021RRSales10 8000007 150000Cost of sales(6000000)(3 650000)Grossprofit48000003500000Operating expenses(1 800000)(1 200000)Depreciation580000200000Otherselling, generalandadministrative expenses122000010000000Operating profit30000002 300000Investment income??Interestexpense(880000)(600000)Profitbeforetax26000002030000Companytax(728000)(568400)Profitaftertax18720001461600

In addition tothe above,thefollowing information isavailable:

Allsalesandpurchasesofinventoryareoncredit.Inventorieson31December2020amountedtoR1 500000.Credittermsof5/10net90daysaregrantedbycreditors.Credittermsof60daysaregrantedto debtors.Dividendsdeclaredfortheyearsended31December2021and2022amountedtoR1169280andR1 422000 respectively.

Thefinancialmanager ofOrbitLimitedprovided thefollowing forecasts for2023:

Salesareestimatedat8000unitswithasellingpriceofR1800each.Themanufacturingcostsincludedirect materialsofR460perunit,directlabourofR315perunit,variableoverheadsofR170perunitandfixed overheadsofR880000.FixedsellingandadministrationcostsareestimatedatR2000000andthevariable sellingcostsareestimated to be7.5%of sales.

Thedirectorsarecontemplatingdiversificationin2024 byenteringthepassenger transportmarket.Thiscould beachievedthroughthepurchaseofafleet ofmidibusesthatare expectedtocostR9500000.An additional R500000willbespentonimportduties.ThecostofoperatingthebuseseachyearisexpectedtobeR4 100000andtheannualrevenuesfromtransportingthepassengersareestimatedatR7000000. Thebuses

areexpectedtohaveatotalsalvagevalueofR1000000andtheestimatedusefullifeofthebusesisfive years.Thecompanyscostofcapitalisexpectedtoreduceto15%.Depreciationiscalculatedusingthe straight-linemethod.

REQUIREDRefertothe planneddiversificationfor 2024andcalculatethefollowing:4.1PaybackPeriod(expressedinyears, monthsand days)(3marks)4.2AccountingRateofReturnon initialinvestment (expressedtotwodecimalplaces)(5marks)4.3NetPresentValue(6 marks)4.4InternalRateof Returnusinginterpolation(expressedtotwo decimalplaces).(6marks)4.5

InternalRateofReturnusinginterpolation(expressedtotwodecimalplaces)ifthere

wereno importdutiesandnosalvage value.

(5 marks)