Thuli Pennypincher has recently been appointed as Financial Manager of Thabos Management Company LTD. (TMC) and manages a portfolio of 10 fast food outlets on behalf of the owners, Sibos Greasy foods (SGF), with the 10 outlets located across the Gauteng Province.

At the beginning of the financial year 2019 (1st January 2019), TMC purchased a Eggomatic Egg Boiler, and then leased it out to the Centurion SGF outlet. This is the flagship store and main revenue generator in the 10-store portfolio.

Thuli is now not so sure, as she reviews the year end accounts (as at 31st December 2019), whether this was such a good idea. She would now like to calculate whether TMC made a satisfactory return on their investment. Her Cost and Management Accountant, Mr. Gray Beancounter, has emailed her the following figures:

Purchase Price at 1 January 2019 Market Value at 31 December 2019 After-tax cash receipts generated by the Eggomatic Egg Boiler Hurdle Rate or required rate of return for TMC (decided by Thuli) Note: The general required rate of return for this type of management company in the fast-food industry is 10%

R82 500 R88 868 R3 300 14%

From a risk tolerance perspective, Thuli, who has had several years experience in the fast- food industry, considers herself a risk-averse manager.

QUESTION 1

1.1 Calculatetheannualreturn(r),ontheEggomaticEggBoiler. 1.2

a) b)

[20 MARKS]

(5) (15)

Describe the characteristics of a manager such as Thuli who is risk averse. Relate your answer to the scenario above. (5)

Graphically illustrate and explain two other risk preference categories. (10)