MAC3702 Assignment 2 (COMPLETE ANSWERS) Semester 1 2026 - DUE 22 April 2026; 100% Correct solutions and explanations.

MAC3702 Assignment 2 (COMPLETE ANSWERS) Semester 1 2026 - DUE 22 April 2026; 100% Correct solutions and explanations. QUESTION 1 (69 marks) UrbanKick Sports Limited (“UKS”) is a Johannesburg-based sportswear manufacturer and distributor specialising in football apparel and footwear. The company is listed on the Johannesburg Stock Exchange (JSE) and operates several branded retail outlets across South Africa and selected SADC countries. Due to increased investment in South African football by technology firms, streaming platforms and mobile network operators, UKS has identified growth opportunities in the performance footwear market. The upcoming FIFA world cup, many South African football clubs that will be participating in the African Cup tournaments and growing popularity of women’s football also contribute to the growth opportunities. The UKS board has overwhelmingly approved the launch of a new smart-performance soccer boot called NOVA X9, inspired by local football icon Neo Khumalo. The following information was extracted from the integrated annual report of UKS. Extract from Statement of Financial Position at 31 December 2025 Rand Ordinary shares (80 cents each) 500 000 Retained income 720 000 Shareholders' capital and reserves 1 220 000 15% Preference shares (R100 each) 120 000 Long term loan - Hatsa Bank (13%) 680 000 Total equity and liabilities 2 020 000 Additional information 1. The expected operating profit, excluding profits from the sale of Nova X9 soccer boots, for the year ending 31 December 2025 is as follows: R Probability 1 600 000 20% 1 700 000 30% 1 800 000 40% 2 000 000 10% 2. Ordinary share dividends declared and paid in the previous five (5) years were as follows: Year Dividend per share 2021 78 cents 2022 85 cents 2023 94 cents 2024 100 cents 2025 110 cents The UKS Board intends to maintain the average annual growth in dividends. 3. The market price for ordinary shares is currently R14 per share and that of preference shares is R98 per share. New share issues will have no effect on these prices, although ordinary share issuing costs will be 3% per share issued. 3. UKS aims to maintain a debt: equity ratio of 1: 1 going forward (based on book values). The book values will approximate the market values of the capital instruments. 5. To manufacture the new Nova X9 soccer boot, UKS is planning to buy a new machine for R900 000 on 1 January 2026. The company will use this machine for 5 years in full production, and then scrap it off at R60 000. 6. The expected annual production quantities of this new soccer boot for which demand exists are given below. These projections will stay the same throughout the 5 year period. Quantity (pairs) Probability 9 000 30% 12 500 40% 15 000 20% 18 500 10% The expected cost per pair: Cost R Direct material 480 Direct labour 220 Variable overhead 55 7. The budgeted fixed costs to produce Nova X9 are R450 000 per annum and the selling price is set at R880 per pair. No inflationary increases need to be considered. The discount rate to be used is 18%. The additional working capital required for this project is R100 000. 40% of this amount will be utilised in the beginning of the project and the balance in the third year. 60% of the total amount will eventually be recovered. The following options are available to finance the new