FIN3701/101/1/2026
ASSIGNMENT 01
Financial Management
FIN3701
Semester 1
Department of Finance, Risk Management and
Banking
Open Rubric
Assignment number Semester 1
01
Due date: 30 March 2026
Unique number: 224276
1
, Assignment 01 – Semester 1 Due date: 30 March 2026 Unique number: 224276
QUESTION [24 marks]
Bottling Ltd is a manufacturer of glass bottles. The company has been advised by a consultant to
introduce plastic bottles for the 2027 Rugby World Cup, as glass bottles will not be allowed in any of the
stadiums. The consultant charged a fee of R14 000 for conducting the market study.
To produce the plastic bottles, the company will need to purchase a machine costing R120 000, as well
as two moulds – one for the containers and one for the lids – at a total cost of R22 000. The machine
will be depreciated using the straight-line method over a useful life of two years. At the end of the two
year period, the machine is expected to be sold for 23% of its original cost.
The consultant estimates sales of R80 000 in the first year, with a projected decrease of 10% in the
second year. The total fixed costs are expected to be R4 500 per year, while variable costs are estimated
at 15% of sales.
Bottling Ltd will need plastic material valued at R1 200 to commence production. Of this amount, R1 000
will be financed using the company’s overdraft facility.
The company’s cost of capital is 10%, and both income and capital gains are taxed at a rate of 29%.
REQUIRED:
1.1 Calculate the initial investment required for the purchase of the new machine and the two
moulds.
Initial investment
Purchase price R120 000
Moulds R22 000
Installed costs R142 000
+Plastic material R1 200
-Overdraft available R (1 000)
Initial investment R142 200
The R14 000 is a sunk cost. It will not be considered in the calculations of cash flows.
Whether the managements accept or reject the project, it must be paid.
2
ASSIGNMENT 01
Financial Management
FIN3701
Semester 1
Department of Finance, Risk Management and
Banking
Open Rubric
Assignment number Semester 1
01
Due date: 30 March 2026
Unique number: 224276
1
, Assignment 01 – Semester 1 Due date: 30 March 2026 Unique number: 224276
QUESTION [24 marks]
Bottling Ltd is a manufacturer of glass bottles. The company has been advised by a consultant to
introduce plastic bottles for the 2027 Rugby World Cup, as glass bottles will not be allowed in any of the
stadiums. The consultant charged a fee of R14 000 for conducting the market study.
To produce the plastic bottles, the company will need to purchase a machine costing R120 000, as well
as two moulds – one for the containers and one for the lids – at a total cost of R22 000. The machine
will be depreciated using the straight-line method over a useful life of two years. At the end of the two
year period, the machine is expected to be sold for 23% of its original cost.
The consultant estimates sales of R80 000 in the first year, with a projected decrease of 10% in the
second year. The total fixed costs are expected to be R4 500 per year, while variable costs are estimated
at 15% of sales.
Bottling Ltd will need plastic material valued at R1 200 to commence production. Of this amount, R1 000
will be financed using the company’s overdraft facility.
The company’s cost of capital is 10%, and both income and capital gains are taxed at a rate of 29%.
REQUIRED:
1.1 Calculate the initial investment required for the purchase of the new machine and the two
moulds.
Initial investment
Purchase price R120 000
Moulds R22 000
Installed costs R142 000
+Plastic material R1 200
-Overdraft available R (1 000)
Initial investment R142 200
The R14 000 is a sunk cost. It will not be considered in the calculations of cash flows.
Whether the managements accept or reject the project, it must be paid.
2
