Project Financial Management

QUESTION 1 (25 Marks) As a financial manager of Dublin Enterprises, you are required to analyse two proposed capital investments, Projects ABC and Project XYZ. Each has a cost of R400 000, and the cost of capital for each project is 15%. Depreciation is calculated on the straight-line method. The projects expected profit are as follows:

Required 1.1 Calculate the payback period for each project (In years, months and days). (10) 1.2 Calculate the NPV for each project (10) 1.3 Which project or projects should be accepted if they are independent? (1) 1.4 Calculate the ARR for project XYZ (4)

QUESTION 2 (25 Marks) INFORMATION Valpre Limited plans to manufacture bar fridges and the following information is applicable:

REQUIRED: 2.1 Calculate the total net profit for the estimated figures. (4) 2.2 Calculate the break-even quantity (4) 2.3 Calculate the break-even value (3) 2.4 Calculate the break-even value using the marginal income ratio. (4) 2.5 Calculate the target sales volume to achieve a profit of R1 841 000. (4) 2.6 Calculate the new break-even quantity and value if the selling price is increased by 15% (4) 2.7 Calculate the margin of safety in units at the original budgeted volume and price (2)

QUESTION 3 (25 Marks) Extracts of the financial statements of HP Limited for 2023 are given below. INFORMATION HP Limited Extract of the Statement of Comprehensive Income for the year ended 31 December 2023

Required: Calculate the following ratios for 2023. Where applicable, round off answers to two decimal places: 3.1 Operating profit on turnover (5) 3.2 Current ratio (5) 3.3 Acid test ratio (5) 3.4 Interest cover (5) 3.5 Return on assets (5)

QUESTION 4 (25 Marks) 4.1 You want to begin saving for your daughters college education and you estimate that she will need R240 000 in 17 years. If you feel confident that you can earn 7.5% per year, how much do you need to invest today?(6) 4.2 Suppose your company expects to increase unit sales of widgets by 14% per year for the next 8 years. If you currently sell 2.5 million widgets in one year, how many widgets do you expect to sell in 6 years?(6) 4.3 You are looking at an investment that will pay R1 800 in 3 years if you invest R400 today. What is the implied rate of interest?(8) 4.4 You want to purchase a new car and you are willing to pay R500 000. If you can invest at 14% per year and you currently have R350 000, how long will it be before you have enough money to pay cash for the car?(5)

Year123PROJECTABCR80000R10000R10000(R30000)PROJECTXYZR30000R30000R30000R30000 \begin{tabular}{|l|c|} \hline Estimated sales for the year & 10000 units at R6 800 each \\ \hline Estimated costs for the year: & \\ \hline Variable costs & R1 040 per unit \\ \hline Direct Material & R700 per unit \\ \hline Direct Labour & R220 per unit \\ \hline Variable Manufacturing Cost & 10% of selling price per unit sold \\ \hline Selling expenses & R875000 \\ \hline & R786 000 \\ \hline Factory overheads (all fixed) & \\ \hline Administrative expenses (all fixed) & \\ \hline \end{tabular} Extract of the Statement of Financial Position as at 31 December 2023 \begin{tabular}{|l|c|} \hline & R \\ \hline Assets & 1615000 \\ \hline Non- current assets & 1113500 \\ \hline Current assets (Includes inventory of R332 000) & \\ \hline Equity and liabilities & 2000000 \\ \hline Ordinary share capital (500000 shares) & 99500 \\ \hline Retained earnings & 340000 \\ \hline Non- current liabilities & 289000 \\ \hline Current liabilities & \\ \hline \end{tabular} \begin{tabular}{|l|c|} & R \\ \hline Sales & 1360000 \\ \hline Cost of Sales & (850000) \\ \hline Gross Profit & 510000 \\ \hline Operating Profit & 306000 \\ \hline Interest Expense & (34000) \\ \hline Profit before tax & 272000 \\ \hline Net Profit after tax & 195840 \\ \hline \end{tabular}