QUESTION $2$

Radiant Beauty Limited, is a company that specialises in the production of premium skincare and

cosmetic products. The company has been experiencing steady growth over the past five years. The

company's product lines include anti$-$aging creams, serums, moisturisers, and makeup, all renowned for

their quality and effectiveness. Radiant Beauty's products are in high demand across various markets,

including major retail chains and online platforms. The company has a $31$ March year$-$end.

Radiant Beauty's current manufacturing facilities are operating at full capacity, creating a bottleneck that

risks delaying deliveries and losing market share to competitors. To meet the increasing customer

demand and maintain its competitive edge, the management team is considering investing in a new high$-$

tech manufacturing line. This new production line, valued at R$5$ million, is expected to significantly

enhance the company's manufacturing capabilities by incorporating advanced automation technologies

to improve production efficiency.

Radiant Beauty Limited

Statement of financial position at $31$ March $2024$

ASSETS

Non$-$current assets

Property, plant and equipment

Intangible assets

Investments

Current assets

Inventory

Trade receivables

Cash and cash equivalents

TOTAL ASSETS

EQUITY AND LIABILITIES

Share capital

Retained earnings

LIABILITIES

Non$-$current liabilities

Interest$-$bearing debt

Lease liabilities

Current liabilities

Interest$-$bearing debt

Trade and other payables

Lease liabilities

Taxation payable

Radiant Beauty Limited

Statement of profit or loss for the year ended $31$ March $2024$

The management team at Radiant Beauty Ltd favour a balanced approach to risk. While they are not

averse to taking calculated risks to drive growth and innovation, they prioritise maintaining a healthy

capital structure. The company has a history of prudent financial management, avoiding excessive

leverage, and ensuring that any significant investments are backed by thorough market analysis and

financial projections.

To finance the R$5$ million investment in the new high$-$tech manufacturing line, Radiant Beauty Ltd is

considering obtaining a long$-$term loan of R$3$ million. Interest on the proposed loan will be levied at $12\%$

per annum. The loan will be obtained on $1$ April $2024$ and a bullet payment of the capital amount will be

repaid after $7$ years. The company intends to fund the remaining R$2$ million using cash from its retained

earnings.

The investment in the new production line is expected to result in an increase of $12\%$ in revenue.

Based on past experience, it is evident that the management of Radiant Beauty Ltd prefers to maintain

key financial ratios within specific levels. Management aims to ensure that the following levels are

maintained:

Current ratio: A minimum ratio of $1\mathrm{.}2$:$1$

Quick ratio$/$Acid$-$test ratio: The target ratio is $1$:$1$ or higher.

Debt to Equity Ratio: A target ratio of $85$:$15.$

Debt Ratio: The company aims for a debt ratio below $50\%$

Interest cover ratio: The target interest cover ratio is $5$ or higher.

Return on Assets $($ROA$)$: The target ROA is $8-10\%($industry average$).$

Return on Equity $($ROE$)$: Radiant Beauty aims for an ROE of $15-20\%($industry average$)$