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Question 1 The following information relates to Windhoek Alarm Systems (WAS) for the financial years 2021 and 2020. Summarised Statement of Financial Position as at

Question 1

The following information relates to Windhoek Alarm Systems ("WAS") for the financial years 2021 and 2020.

Summarised Statement of Financial Position as at 30 November 2021
2021 2020
N$ N$
Assets
Non- current/fixed 7 000 000 6 000 000
Inventory 500 000 300 000
Receivables 450 000 420 000
Cash 650 000 80 000
Total Assets 8 600 000 6 800 000
Equity and Liabilities
Share capital (N$2 shares) 5 000 000 4 400 000
Retained Income 900 000 500 000
Long term Debt 2 000 000 1 000 000
Payables 700 00 900 000
Total equity and liabilities 8 6000 000 6 800 000

Summarised Statement of Profit and Loss for the year ended 30 November 2021

N$
Sales (50% on credit) 3 000 000
Cost of sales 2 000 000
Depreciation 120 000
Interest Expense 80 000
Net Income before Tax 900 000
Dividends 330 000
Retained Income 300 00

Additional information Shares are currently trading at N$2.30 per share. The new shares were issued at the beginning of the year. Similar businesses have a return on investment of 15%

Required

Calculate the following ratios for 2021 and comment. Ratios for 2020 are given in brackets.

Current ratio (0,89:1)

Acid test ratio (0,56:1)

The debtors collection period (81 days) [all debtors are on 60 days accounts]

Calculate the earnings per share and dividends per share for 2021. 4 14 4.3 How many shares were issued in 2021?

Calculate the market to book ratio.

Explain the significance of this ratio 4 20 4.5 Calculate the return on equity using the Du Point Identity/Formula. Will the management be happy with this return?

Question 2

Simunye Enterprises ("SE") is budgeting to sell 1 000 units of product S in the forthcoming period. The selling price per unit of S is N$50. The cost of producing one unit of S is N$25. If SE sells on credit, they will incur a collection cost of about N$1 per unit sold. The weighted average cost of capital for SE is 15%. The normal year has 365 days.

Required

Calculate the profit to the SE if:

All sales are for cash;

Sales are made on credit and customers pay within 30 days;

Sales are made on credit and a 2% discount is granted if customers pay in 10 days. 50% of the customers will take advantage of the discount.

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