MAC3702 ASSIGNMENT 2 ANSWERS DUE 22 APRIL 2026 PASS GUARANTEED

MAC3702 Assignment 2


Question 1(a)

Expected Operating Profit (Existing Business)

Expected OP = (1 600 000 × 0.20) + (1 700 000 × 0.30) + (1 800 000 × 0.40) + (2 000 000 ×
0.10)

= 320 000 + 510 000 + 720 000 + 200 000

= R1 750 000




Expected Operating Profit from Nova X9

Expected quantity = 9000(0.30) + 12 500(0.40) + 15 000(0.20) + 18 500(0.10)

= 2 700 + 5 000 + 3 000 + 1 850

= 12 550 pairs



Total variable cost = 480 + 220 + 55 = R755



Contribution per pair = 880 − 755 = R125



Expected total contribution = 12 550 × 125 = R1 568 750



Annual fixed production cost for Nova X9 = R450 000



Operating profit from Nova X9 = 1 568 750 − 450 000 = R1 118 750

, Total expected operating profit = Existing OP + Nova X9 OP

= 1 750 000 + 1 118 750

= R2 868 750



Question 1 (b)

Debt needed = 900 000 × 50% = R450 000

Equity needed = 900 000 × 50% = R450 000



The maximum debt UKS can raise from loans: R250 000 + R80 000 = R330 000

But required debt = R450 000 → insufficient.



R450 000 - R330 000 = R120 000

( R120 000 must be financed using equity)



Total equity required: R450 000 + R120 000 = R570 000



Average growth:

G=( 9+10.6+6.4+10) / 4

=9%



Cost of equity using Gordon model:

Ke=1.10(1.09) / 13.58 + 0.09

=1..58 + 0.09

=8.83 + 9

Ke=17.83%