MAC2602
ASSIGNMENT 2
SOLUTIONS
PREPARED BY: MTHOMBENI
0767297208
, QUESTION 1
(a) Net profit of both option 1 and option 2
OPTION 1
Earnings before interest and tax (EBIT) (115 000 000X110%) 126 500 000
Interest expense -
Profit before taxation 126 500 000
Income tax expense (126 500 000 X 28%) (35 420 000)
Net profit 91 080 000
OPTION 2
Earnings before interest and tax (EBIT) (115 000 000X110%) 126 500 000
Interest expense (100 000 000 X 9%) (9 000 000)
Profit before taxation 117 500 000
Income tax expense (126 500 000 X 28%) (35 420 000)
Net profit 82 080 000
(b) The return on assets (ROA) for both option 1 and option 2
OPTION 1
Net profit
Total assets
91 080 000
600 000 000
15.18%
OPTION 2
Net profit
Total assets
82 080 000
600 000 000
13.68%
1
ASSIGNMENT 2
SOLUTIONS
PREPARED BY: MTHOMBENI
0767297208
, QUESTION 1
(a) Net profit of both option 1 and option 2
OPTION 1
Earnings before interest and tax (EBIT) (115 000 000X110%) 126 500 000
Interest expense -
Profit before taxation 126 500 000
Income tax expense (126 500 000 X 28%) (35 420 000)
Net profit 91 080 000
OPTION 2
Earnings before interest and tax (EBIT) (115 000 000X110%) 126 500 000
Interest expense (100 000 000 X 9%) (9 000 000)
Profit before taxation 117 500 000
Income tax expense (126 500 000 X 28%) (35 420 000)
Net profit 82 080 000
(b) The return on assets (ROA) for both option 1 and option 2
OPTION 1
Net profit
Total assets
91 080 000
600 000 000
15.18%
OPTION 2
Net profit
Total assets
82 080 000
600 000 000
13.68%
1
