CASE STUDY AND ANSWERS FOR FINANCIAL MANAGEMENT

FORMATIVE ASSESSMENT 1 [100 MARKS]
Answer ALL questions in


QUESTION 1 (25 Marks)


As a financial manager of Dublin Enterprises, you are required to analyse two proposed capital investments, Projects ABC
and Project XYZ. Each has a cost of R400 000, and the cost of capital for each project is 15%. Depreciation is calculated on
the straight-line method. The projects’ expected profit are as follows:



PROJECT ABC PROJECT XYZ
Year
1 R80 000 R30 000
2 R10 000 R30 000
3 R10 000 R30 000
4 (R30 000) R30 000



Required


1.1 Calculate the payback period for each project (In years, months and days). (10)
1.2 Calculate the NPV for each project (10)
1.3 Which project or projects should be accepted if they are independent? (1)
1.4 Calculate the ARR for project XYZ (4)

, QUESTION 2 (25 Marks)
INFORMATION

Valpre Limited plans to manufacture bar fridges and the following information is applicable:


Estimated sales for the year 10 000 units at R6 800 each
Estimated costs for the year:
Variable costs
Direct Material R1 040 per unit
Direct Labour R700 per unit
Variable Manufacturing Cost R220 per unit
Selling expenses 10% of selling price per unit sold


Factory overheads (all fixed) R875 000
Administrative expenses (all fixed) R786 000


REQUIRED:
2.1 Calculate the total net profit for the estimated figures. (4)
2.2 Calculate the break-even quantity (4)
2.3 Calculate the break-even value (3)
2.4 Calculate the break-even value using the marginal income ratio. (4)
2.5 Calculate the target sales volume to achieve a profit of R1 841 000. (4)
2.6 Calculate the new break-even quantity and value if the selling price is increased by 15% (4)
2.7 Calculate the margin of safety in units at the original budgeted volume and price (2)