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.

Due to capital expansion needs, TMC has decided to investigate sourcing more funds for this expansion. But the one issue that is worrying Thuli, is the lack of focus on working capital management. She fears that an expansion would make a poor working capital situation even worse.

Thuli has requested the Cost and Management Accountant, Mr. Gray Beancounter, to send her an abridged trial balance which details the current sources of capital as well as current assets and liabilities.

Source of Capital Long term debt

9% Preference shares Ordinary share equity Other Balances Revenue

Cost of goods sold Inventory Accounts receivable Accounts payable

Value R500 000 R200 000 R300 000

R6634 000 R4593 000 R1708 000 R129 000 R1077 000

Additional information

The company pays a tax rate of 28%

The cost of raising ordinary share capital is 17%

TMCs after tax cost of debt is 11%

Because of the nature of their business TMC use a 365 day as a basis for

calculation

QUESTION 3

[20 MARKS]

(8) (12)

3.1 CalculatetheweightedaveragecostofcapitalforTMC.

3.2 CalculatetheCashConversionCycle(CCC)forTMC.