Question 3.1...................................................................................................................... (10 Marks)

Tuna Canneries Ltd Is planning for 2019 and wants to estimate the amount of funds that they will require. In 2018 the company had total assets of R105 million, total liabilities of R25 million, and sales of R200 million Its 2018 net profit margin of 10% and dividend pay-out ratio of 40% are expected to remain the same in 2019. The company expects sales of R210 million in 2019 All assets and liabilities are considered spontaneous and increase in line with sales. Currently though its assets are operating at 95% of capacity and spare capacity must first be utilized before more assets are acquired. Estimate the company's need for funding for 2019 and write a very brief report to the board explaining the need for financing.

Question 3.2.........................................................................................................................(9 Marks)

Shocks Ltd sells shock absorbers to mechanical workshops on credit only The management of the company estimated that It could increase sales by offering better credit terms Currently, the days sales outstanding (or average collection period) Is 14 days It Is expected that this will change to 30 days under the new standards Sales are expected to increase from R150m to R200m No discounts are offered and bad debts are currently 1% of sales but the company expects It to increase to 2% under the new terms The company can borrow short terms funds at a rate of 12% and has a gross profit margin of 20%. Determine whether It would be worthwhile for the company to change its credit terms. .

Question 3.3........................................................................................................................(6 Marks)

A small manufacturer of candles needs assistance with their short-term financing strategy Currently all of its short-term requirements are financed by a long-term loan at a bank at variable rate of 15% per annum, the loan can be replaced at any time. The company has estimated that 70% of their funding requirements are permanent and that the remainder fluctuates according to demand and other factors. The company could obtain a line of credit at a variable rate of 11% per annum or a new long-term loan at a fixed rate of 10% per annum It Is expected that interest rates may vary over time, but not by more than 2% in either direction. Assist the company by recommending a mix (or single source) of financing for their short-term requirements considering the above information, if the company wishes to employ a moderate working capital policy.