MAC2602 May/Jun 2015 exam paper — questions

Free sample

  1. Question 1.a · Time value of money · 5 marks

    A bank adds interest to investors' accounts every month even though the quoted interest rate is always expressed as an annual percentage. The quoted annual percentage rate on your account is 6% per annum, and you opened the account by depositing R1 550 on 1 June 2015 for a fixed term of four years. Using the appropriate mathematical formulas (showing all formulas and detailed workings, with calculations carried to four decimal places and final answers rounded to the nearest rand), calculate (i) the amount of interest you would have earned by 31 December 2015, and (ii) the total amount that will be in your account on 31 December 2018.Show the full question

  2. Question 1.b · Time value of money · 2 marks

    Nthabi intends to save her annual Christmas bonus of R3 900, depositing it at the end of each year for the next three years into an account earning annual compound interest of 9%. Using the factor table method (showing the equation used and detailed workings, with calculations to four decimal places and the final answer rounded to the nearest rand), determine the value of her total savings at the end of the three years.Show the full question

  3. Question 1.c · Time value of money · 3 marks

    Your employer owns an office building that it wishes to rent out. The rental income of R75 000 per annum will be receivable at the beginning of each year for the next five years, and the applicable discount rate is 8%. Using the appropriate mathematical formula (showing the formula and detailed workings, with calculations to four decimal places and the final answer rounded to the nearest rand), calculate the present value of this annuity.Show the full question

  4. Question 1.d · Time value of money · 2 marks

    Susan is due to receive R6 000 from her parents on her 21st birthday, which falls on 1 January 2015. She plans to invest this R6 000 as soon as she receives it, at an annual compound interest rate of 12%. Using the factor table method (showing the appropriate equation applied, the factors used and detailed workings, with calculations to four decimal places and the final answer rounded to the nearest rand), calculate the value of her investment at the end of seven years.Show the full question

  5. Question 1.e · Time value of money · 1 mark

    Identify the type of interest being described in the following statement: 'Interest that is calculated for the entire period based only on the principal amount.'Show the full question

  6. Question 1.f · Time value of money · 2 marks

    Peter wants to buy a bachelor's flat in three years' time, when he starts his articles, and by then he will need to have a deposit of R30 000 available. Using the factor table method (showing the appropriate equation used to determine the annual investment (I) or payment (pmt), and detailed workings, with calculations to four decimal places and the final answer rounded to the nearest rand), calculate the amount that Peter will need to invest annually for the next three years, at a compounded interest rate of 9%, in order to have the full R30 000 deposit available after three years.Show the full question

  7. Question 2.1 · Cost of capital, WACC and capital structure · 9 marks

    Candidates are told to set their calculators to four decimal places for all calculations in this question, to show the formulas used together with detailed workings, to round percentages to two decimal places and to round final answers to the nearest rand. Donatello Limited's funding structure is made up as follows. There are 300 000 ordinary shares in issue, each with a nominal value of R30. The next dividend to be paid will be R3 per share, and dividends are expected to grow at a long-term sustainable rate of 3%. The shares currently trade at a market value of R40 per share, and Donatello's cost of equity is 10,5%. In addition, Donatello has 5 000 bonds in issue, each with a nominal value of R1 000 and 15 years remaining to maturity. The bonds pay an annual coupon rate of 8% per annum, while the current market return on similar bonds with a 15-year life is 6% per annum. The corporate tax rate applicable is 28%. Required: (i) calculate the cost of debt for Donatello Limited; (ii) calculate the market value of debt for Donatello Limited; and (iii) calculate the weighted average cost of capital (WACC) for Donatello Limited, based on market values, using the WACC formula.Show the full question

  8. Question 2.2 · Cost of capital, WACC and capital structure · 4 marks

    Candidates are told to set their calculators to four decimal places for all calculations in this question, to show the formulas used together with detailed workings, to round percentages to two decimal places and to round final answers to the nearest rand. Sibusiswe Limited holds debentures with a face value of R2 000, which are redeemable after six years at face value. The annual interest payment (coupon rate) on the debentures is 12%, while the current market return for similar debentures with a six-year lifespan is 11%. The current company tax rate should be assumed to be 28%. Required: calculate the current market value of the debentures.Show the full question

  9. Question 2.3 · Cost of capital, WACC and capital structure · 6 marks

    Candidates are told to set their calculators to four decimal places for all calculations in this question, to show the formulas used together with detailed workings, to round percentages to two decimal places and to round final answers to the nearest rand. Using the same Sibusiswe Limited debenture information (face value R2 000, redeemable after six years at face value, coupon rate 12% per annum, current market return on similar six-year debentures of 11%, and a company tax rate of 28%), calculate the effective after-tax cost of debt (IRR/YTM) by mathematically computing the internal rate of return (IRR) and interpolating between 10% and 12%, making use of the factor tables provided.Show the full question

  10. Question 3(a)(i) · Analysis of financial information · 2 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. For Flying Wheels Travel SA (Pty) Ltd, calculate the growth rate in cost of sales for the year ending 28 February 2015 and briefly comment on the change observed.Show the full question

  11. Question 3(a)(ii) · Analysis of financial information · 2 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. For Flying Wheels Travel SA (Pty) Ltd, calculate the growth rate in inventory for the year ending 28 February 2015 and briefly comment on the change observed.Show the full question

  12. Question 3(b) · Analysis of financial information · 2 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Name the four categories into which financial statement ratios are generally grouped.Show the full question

  13. Question 3(c)(i) · Analysis of financial information · 3 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Using the financial statements of Flying Wheels Travel SA (Pty) Ltd, calculate the current ratio for both 2014 and 2015 (the industry average is 2:1), clearly showing the formula used and rounding to two decimal places, and briefly discuss possible reasons for the change between the two years.Show the full question

  14. Question 3(c)(ii) · Analysis of financial information · 3 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Using the financial statements of Flying Wheels Travel SA (Pty) Ltd, calculate the liquid asset ratio for both 2014 and 2015, clearly showing the formula used and rounding to two decimal places, and briefly discuss possible reasons for the change between the two years.Show the full question

  15. Question 3(c)(iii) · Analysis of financial information · 3 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Using the financial statements of Flying Wheels Travel SA (Pty) Ltd, calculate the inventory days for both 2014 and 2015, clearly showing the formula used and rounding to two decimal places, and briefly discuss possible reasons for the change between the two years.Show the full question

  16. Question 3(c)(iv) · Analysis of financial information · 3 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Using the financial statements of Flying Wheels Travel SA (Pty) Ltd, calculate the inventory turnover ratio/rate (using average inventory) for both 2014 and 2015, clearly showing the formula used and rounding to two decimal places, and briefly discuss possible reasons for the change between the two years.Show the full question

  17. Question 3(c)(v) · Analysis of financial information · 3 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Using the financial statements of Flying Wheels Travel SA (Pty) Ltd, calculate earnings per share for both 2014 and 2015, clearly showing the formula used and rounding to two decimal places, and briefly discuss possible reasons for the change between the two years.Show the full question

  18. Question 3(d) · Analysis of financial information · 3 marks

    Flying Wheels Travel SA (Pty) Ltd supplies sport utility vehicles, fully equipped with equipment for outdoor adventures, to tourists. The following financial statements are provided, with the 2015 figure listed before the 2014 figure (amounts in R'000, for the years ended 28 February). Statement of profit or loss and other comprehensive income: revenue 19 899; 21 336 - cost of sales (10 965); (11 362) - gross profit 8 934; 9 974 - operating costs (4 518); (5 563) - distribution costs (1 950); (3 051) - administrative expenses (615); (553) - other expenses (468); (556) - net operating profit/(loss) 1 383; 251 - interest and other income 495; 232 - earnings before interest and tax (EBIT) 1 878; 483 - interest expense (1 005); (956) - profit before tax 873; (473) - income tax expense (262); 142 - net profit 611; (331). Statement of financial position as at 28 February: non-current assets comprise property, plant and equipment 21 556; 20 336 and other investments 6 530; 5 536, giving total non-current assets of 28 086; 25 872. Current assets comprise inventories 1 220; 5 632, trade and other receivables 356; 265 and cash and cash equivalents 2 100; 1 563, giving total current assets of 3 676; 7 460. Total assets are 31 762; 33 332. Equity and liabilities: share capital 10 000; 10 000 and retained earnings 3 948; 3 337 give total equity of 13 948; 13 337. Non-current liabilities comprise interest-bearing borrowings 15 559; 17 520 and deferred tax 556; 459, giving total non-current liabilities of 16 115; 17 979. Current liabilities comprise trade and other payables 954; 1 253, current tax payable 440; 562 and current provisions 305; 201, giving total current liabilities of 1 699; 2 016. Total equity and liabilities equal total assets of 31 762; 33 332. Additional information: (1) the company has 2 million authorised shares and 1 million issued shares; (2) the opening inventory balance for 2014 was R3 856 000; (3) sales on credit represent 60% of revenue in both years. Read the following statement about inventory management: 'The management of the company's inventory is important as it ensures that the level of inventory is adequate to sustain the operations and keep the costs at a minimum.' Define the two major categories of costs incurred in holding inventory and give an example of the type of cost included in each category.Show the full question

  19. Question 4.1 · Capital investment and budgeting · 6 marks

    Part 1: Three scenarios of capital expenditure are described. Scenario (a): The Apple Company realised that voice recognition technology is becoming more important in mobile equipment markets. However, having no in-house expertise, Apple decided to buy a small company called Siri, which has state-of-the-art technology in voice recognition platforms; this acquisition will enable Apple to become a leader in the mobile markets. Scenario (b): An industrial valve manufacturing company owns several machines used in manufacturing valves. One of these machines broke down, and after contacting the supplier, it was established that the machine could be reconditioned by replacing its old engine and gear box. Scenario (c): A transport company transports cargo from the Durban port to various African countries. In one of these countries a truck was filled with contaminated diesel and could not continue its journey; a mechanic had to be flown out to the site, and the mechanic's report confirmed that the contaminated diesel had damaged the truck's engine beyond repair. Because the cost of replacing the truck's engine was much higher than the truck's book value, the transport company decided to buy a new truck instead. Required: identify the correct type of capital expenditure represented by each of the three scenarios, and briefly explain why each should be classified as that specific type.Show the full question

  20. Question 4.2 · Capital investment and budgeting · 4 marks

    Part 2: The following items are examples of either factors that can influence the capital allocation decision, or risks and uncertainties in capital budgeting decisions: inflation rates for different input costs; availability of funds; legal factors; the current and target capital structure of the organisation; future demand for the product; the selling price of the product; the immediate need for the project; and the reaction from competitors. Required: group together, in table format (with one column headed 'Factors' and the other 'Risks and uncertainties'), all the items listed above that represent factors influencing the capital allocation decision, and all the items that represent risks and uncertainties in capital budgeting decisions.Show the full question

  21. Question 4.3 · Capital investment and budgeting · 12 marks

    Part 3: Fast Shearing (Pty) Ltd specialises in shearing sheep and is considering buying new electronic shearing equipment. Two options are being evaluated: equipment Zipper and equipment Rambo. For Zipper: the cost price is R15 600, working capital required is R2 000, net operating income before tax is R5 940, the current realisable value at the end of its useful life is R1 000, and its useful life is 6 years. For Rambo: the cost price is R18 900, working capital required is R2 300, net operating income before tax is R6 220, the current realisable value at the end of its useful life is R1 100, and its useful life is also 6 years. Additional information: (1) Taxation - tax-deductible wear and tear allowances are calculated on the straight-line method at 20% per annum on the cost of the asset, and the normal income tax rate is 28%. (2) In determining net operating income, depreciation has not been taken into account; the company's accounting policy is to provide for depreciation in accordance with the wear and tear allowance permitted by SARS. (3) Management requires a 17% after-tax return on all capital investments. (4) All cash flows are assumed to occur at the end of each year, except the initial capital outlays, which occur at the beginning of year one. (5) The IRR for Zipper has already been correctly calculated to be 17,56%. Required: calculate the IRR of machine Rambo by interpolating between 16% and 18%, and advise, with motivation based on your calculations, whether machine Zipper or machine Rambo should be acquired. Use four decimal places for your calculations and round your final answer to two decimals or to the nearest rand.Show the full question

  22. Question 5.1 · Strategy and strategic management · 2 marks

    Consider the following five statements: (1) alignment strategy; (2) cost leadership strategy; (3) pricing strategies; (4) risk strategy; (5) differentiation strategy. Which combination of these statements represents generally accepted competitive strategies available to an organisation to achieve its long-term goals? Choose from: a) Statements (1), (3) and (4); b) Statements (1), (2) and (5); c) Statements (2), (3) and (4); d) Statements (2), (3) and (5).Show the full question

  23. Question 5.2 · Strategy and strategic management · 2 marks

    From the list given - a) The South African Institute of Chartered Accountants (SAICA); b) Banks; c) Customers; d) Employees - identify which one of these stakeholders can be considered a secondary stakeholder of Duplo (Pty) Ltd.Show the full question

  24. Question 5.3 · Strategy and strategic management · 2 marks

    Identify which one of the following examples represents an external economic factor that influences the development of strategy: a) Unethical and unlawful actions; b) Timing of local elections; c) Inflation; d) New technology.Show the full question

  25. Question 5.4 · Analysis of financial information · 2 marks

    Measuring annual profitability based only on accounting and financial indicators has certain drawbacks. Consider these five statements about such drawbacks: (1) it encourages short-term returns at the expense of the development of the business; (2) it is a long-term measure; (3) profit earned is not an indicator of cash flows generated; (4) it ignores risk; (5) it can be manipulated through the use of creative accounting. Which combination of these statements correctly represents examples of these drawbacks? Choose from: a) Statements (1), (2), (3), (4) and (5); b) Statements (1), (2), (3) and (5); c) Statements (1), (3), (4) and (5); d) Statements (2), (3), (4) and (5).Show the full question

  26. Question 5.5 · Cost of capital, WACC and capital structure · 2 marks

    Consider the following four statements about a close corporation: (1) membership can be transferred to a new member if the other members agree to it, ensuring the continued existence of the close corporation; (2) it is a less expensive and simpler legal form of business for the entrepreneur or a few participants; (3) it is taxed as an organisation apart from its members, at 28%; (4) members enjoy limited liability for the debts of the organisation unless it can be proven that they acted fraudulently. From this list, identify which combination represents advantages of a close corporation. Choose from: a) Statements (1), (2), (3) and (4); b) Statements (1), (3) and (4); c) Statements (1), (2) and (3); d) Statements (2), (3) and (4).Show the full question

  27. Question 5.6 · Cost of capital, WACC and capital structure · 2 marks

    Consider the following four statements regarding sources and forms of finance: (1) raising money internally is the process by which an organisation retains the operating cash flow to be saved and reinvested in the organisation on behalf of the organisation's owners/investors; (2) a capital market is a financial market in which equity and long-term debt securities are traded; (3) the money market is a financial market used mainly for raising short-term finance; (4) a mortgage loan, where the loan is normally secured over the value of the property offered as security, is a form of long-term loan. Which combination of these statements is TRUE? Choose from: a) Statements (1), (2) and (3); b) Statements (2), (3) and (4); c) Statement (1), (2) and (4); d) Statements (1), (2), (3) and (4).Show the full question

  28. Question 5.7 · Cost of capital, WACC and capital structure · 2 marks

    The following are statements regarding long-term financing considerations. Identify which ONE of these statements is FALSE: a) Dividends are not deductible for normal tax purposes as a business expense, whereas interest usually is; b) In the case of liquidation, debt is repaid before equity; c) Equity holders control the organisation while debt holders normally do not have control over the organisation; d) Equity tends to have a finite life (repaid over a period of time) while debt tends to be part of the organisation for life.Show the full question

  29. Question 5.8 · Cost of capital, WACC and capital structure · 2 marks

    Consider the following four statements regarding the issue of ordinary preference shares: (1) the control of the organisation will not be affected when the shares are issued, as the shares do not have any voting rights; (2) ordinary preference shares present a lower risk to lenders/investors as they require a lower return; (3) financial leverage will reduce as the amount of ordinary preference shares (classified as equity) increases without bringing about dilution for the average shareholders; (4) preference dividends are not deductible for tax purposes. Which combination of these statements can be regarded as advantages to the organisation? Choose from: a) Statements (1), (2) and (3); b) Statements (1), (2) and (4); c) Statements (2), (3) and (4); d) Statements (1), (2), (3) and (4).Show the full question

  30. Question 5.9 · Risk management · 2 marks

    A particular method used to identify risk helps to identify possible legal exposure or contractual liabilities, indicate sources of income and losses, and/or identify values that are at risk. Identify which method to identify risk is being described: a) Results of quality control checks, inspection and audit reviews; b) Analysis of financial statements; c) Organisation charts and flow charts; d) Stakeholder consultation.Show the full question

  31. Question 5.10 · Risk management · 2 marks

    Identify the term used to describe the process of selecting and implementing measures to reduce or mitigate risk to an acceptable level: a) Risk analysis; b) Risk monitoring; c) Risk response; d) Risk reporting.Show the full question