Question 2 [30 Marks] Zen Communication is a large-scale marketing materials firm in Cape Town. They'd like to achieve a return on investment of 30%. The marketing department estimates the firm can achieve the following sales: PROBABILITY SALES 50% R45 633 384 50% R55 554 500 The marketing department limits marketing expenses to 5% of sales. The credit department aims to limit bad debt to 2% of sales. The cost of goods sold is 40% of sales HR has been provided with the guideline of limiting salaries and HR expenses to 27% of sales. Courier and delivery expenses are expected to not exceed 1,5% of sales. Other operating expenses are estimated as follows: Bank charges 31 566 Consultants 130 000 Depreciation 2 595 000 External service providers 68 000 Fuel 421 000 Insurance 1 920 000 Internet expenses 15 000 Leased equipment 75 978 Legal costs 234 363 Licence and fees 17 455 Non-capitalised equipment 23 444 Printing 23 111 Property rentals 23 455 Refreshment and entertainment 33 454 Repairs and maintenance 20 000 Stationery 25 000 Telephone 7 200 Toll fees 3 900 Training and development 35 000 Travel and subsistence 25 500 Water electricity and sanitation 92 500 The firm estimates that it will have to pay R20 000 in interest. The tax rate is 28% of earnings before tax. The financial manager has also prepared the following projections: 2 13 200 400 7 250 000 3 210 000 Non-current assets: Land and buildings Equipment Vehicles Current assets: Cash Accounts receivable Inventory Shareholders' interest: Ordinary shares Retained earnings Long-term debt Current liabilities: Accounts payable Accruals 620 000 2 2 900 000 2 550 000 13 550 000 5 082 500 2 354 500 7 250 000 450 000 1) ii) Prepare the projected statement of comprehensive income and determine the expected earnings after tax. [15] Prepare the projected statement of financial position and determine the amount of financing required. [10] What is the current debt ratio? [2] What could the firm do to improve its debt ratio? [3] iii) iv) Question 2 [30 Marks] Zen Communication is a large-scale marketing materials firm in Cape Town. They'd like to achieve a return on investment of 30%. The marketing department estimates the firm can achieve the following sales: PROBABILITY SALES 50% R45 633 384 50% R55 554 500 The marketing department limits marketing expenses to 5% of sales. The credit department aims to limit bad debt to 2% of sales. The cost of goods sold is 40% of sales HR has been provided with the guideline of limiting salaries and HR expenses to 27% of sales. Courier and delivery expenses are expected to not exceed 1,5% of sales. Other operating expenses are estimated as follows: Bank charges 31 566 Consultants 130 000 Depreciation 2 595 000 External service providers 68 000 Fuel 421 000 Insurance 1 920 000 Internet expenses 15 000 Leased equipment 75 978 Legal costs 234 363 Licence and fees 17 455 Non-capitalised equipment 23 444 Printing 23 111 Property rentals 23 455 Refreshment and entertainment 33 454 Repairs and maintenance 20 000 Stationery 25 000 Telephone 7 200 Toll fees 3 900 Training and development 35 000 Travel and subsistence 25 500 Water electricity and sanitation 92 500 The firm estimates that it will have to pay R20 000 in interest. The tax rate is 28% of earnings before tax. The financial manager has also prepared the following projections: 2 13 200 400 7 250 000 3 210 000 Non-current assets: Land and buildings Equipment Vehicles Current assets: Cash Accounts receivable Inventory Shareholders' interest: Ordinary shares Retained earnings Long-term debt Current liabilities: Accounts payable Accruals 620 000 2 2 900 000 2 550 000 13 550 000 5 082 500 2 354 500 7 250 000 450 000 1) ii) Prepare the projected statement of comprehensive income and determine the expected earnings after tax. [15] Prepare the projected statement of financial position and determine the amount of financing required. [10] What is the current debt ratio? [2] What could the firm do to improve its debt ratio? [3] iii) iv)
