FIN2601 Assignment 1 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED

FIN2601 Assignment 1 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references .. QUESTION 1 [18 MARKS] Read the information provided and then answer the questions that follow. Indicate all the steps in your calculations – it is NOT enough to provide only a final answer. FIN2602 Jungle Build Projects is a relatively young civil engineering company based in Rustenburg, North West. A month ago, Sherman Alexander Hemsley was appointed as the financial manager of the company. He received the company's yearly financial statistics and was requested to prepare a report on the success of the business. The report must be submitted to management. INV2601 Extract from the statement of comprehensive income for 31 December 2024 2023 2024 Sales R R FIN2601/101/1/2025 5 Cost of goods sold R R Gross profit R BAN2601 R Administrative expenses R520 000 R600 000 Earnings before interest and tax (EBIT) R680 000 R800 000 Extract from the statement of financial position as of 31 December 2024 2023 2024 Trade and other receivables R440 000 R820 000 Inventories R460 500 R380 000 Cash and cash equivalents R299 500 R300 000 Current assets R R Total assets R R Total liabilities R R Take the following into consideration: RSK2601 a) The below table of ratios provided is applicable for the year 2023 and 2024 b) Assume a 365-day year for the calculations. c) Apply year end-based figures for inventory. Use the information above to answer the following questions: 1.1 Use the financial statement above to calculate the following ratios for 2023 and 2024: (16 marks) Ratio 2023 2024 6 Gross profit margin Average collection period Total asset turnover Debt ratio 1.2 Based on your findings, highlight the main differences between the years 2023 and 2024 under the following headings provided. Provide possible reasons by explaining any one of them: (2 marks) 1. Profitability ratios 2. Debt ratios 3. Activity ratios Ensure that your analysis includes a detailed comparison of the ratios for both years and provides a clear explanation for the observed differences. QUESTION 2 [12 MARKS] Read the information provided and then answer the questions that follow. Indicate all the steps in your calculations – it is NOT enough to provide only a final answer. Technological & Innovations Ltd. had been founded ten years ago and was profitable for the last five years. However, it did not pay a dividend as it needed all its earnings to support growth. Management plans to pay a R1,69 dividend three years from now, with subsequent growth rates as follows: 30% (Year 4), 40% (Year 5) and a constant rate of 15% thereafter. Given the dividend stream below and a required return of 18%: Year 5 6 FIN2601/101/1/2025 7 Growth rate 30% 40% 15% Dividends R0 R0 R0 R1,69 R_____ R_____ R_____ Use the information above to answer the following questions: 2.1 Determine the value of the cash dividends at the end of each year. (2 marks) 2.2 Determine the present value of dividends expected during the initial growth period. (2 marks) 2.3 Determine the value of the share at the end of the initial growth period. (7 marks) 2.4 Determine the present value of the share after the initial period. (1 mark)