[Type the company name]
MAC3702 Assignment 2
(COMPLETE ANSWERS)
Semester 2 2025 - DUE 12
September 2025
NO PLAGIARISM
[Year]
,Exam (elaborations)
MAC3702 Assignment 2 (COMPLETE
ANSWERS) Semester 2 2025 - DUE 12
September 2025
Course
Application of Financial Management Techniques (MAC3702)
Institution
University Of South Africa (Unisa)
Book
Managerial Finance
MAC3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2025 - DUE 12
September 2025; 100% TRUSTED Complete, trusted solutions and
explanationsEnsure your success with us
QUESTION 1 (72 marks) GlucoCare Limited is a healthcare technology and
pharmaceutical company based in Johannesburg, Gauteng. The company is
dedicated to making diabetes management more affordable and accessible
to patients across South Africa. In early 2024, GlucoCare identified that one
of the biggest barriers for diabetic patients is the high cost of continuous
glucose monitoring (CGM) systems and insulin delivery devices. In response,
the company developed GlucoTrack-Lite, a compact, wearable glucose
monitor that pairs with a smartphone app and provides real-time blood sugar
readings at a fraction of the cost of traditional CGM devices. The device also
incorporates a smart alert system to notify users — and their doctors — of
dangerous fluctuations, potentially preventing severe complications.
Remarkably, early testing showed that patients using GlucoTrack-Lite
improved their average glucose stability within 3–5 days of use — far quicker
than the several weeks usually required for behavioural and dosage
adjustments to show measurable benefits. GlucoCare Limited’s mission is to
become the leading provider of affordable diabetes management solutions in
South Africa, believing that effective monitoring and timely intervention can
significantly reduce hospital admissions and long-term complications for
diabetic patients. The breakthrough attracted the attention of the National
Department of Health, which awarded GlucoCare a grant to roll out a
national pilot project. During the pilot phase, the company distributed
GlucoTrack-Lite devices to public clinics, endocrinology practices, and select
pharmacies nationwide, receiving overwhelmingly positive feedback from
patients and healthcare providers. The pilot phase cost is R575 000. The
following financial information was sourced from GlucoCare Limited’s
integrated annual report: The earnings before tax for the year ending 31 May
,2025 were correctly calculated at R (2024: R). The industry norm for return
on assets is 8%, the debt-to-equity ratio norm is 1:1, and the total assets-to-
total liabilities norm is 4 times. Extract from the Statement of Financial
Position at 31 May 2025: Notes R’000 Ordinary shares 1,2 575 000 Retained
income 2 828 000 Shareholders’ capital and reserves 1 403 000 14,5%
Preference shares 3 138 000 Long term loan – FNB Bank (13,50%) 782 000
Total equity and liabilities 2 323 000 Additional information 1. The ordinary
shares were issued at R9,20 per share. The current market price for ordinary
shares is R172,50 per share. New issues will have no effect on this price,
although ordinary share issue costs will be 3,45% of the current market
price. 2. An ordinary share dividend of 121,28 cents was paid for the 2024
financial year-end (2023: 110,25 cents; 2022: 100,22 cents). The GlucoCare
Limited Board intends to maintain the average historical growth in dividends
of 10%. ASSIGNMENT 2 SEMESTER 2 - 2025 4 3. The preference shares were
issued at R92 per share. Preference shares in the same risk class currently
yield 13,42%. Preference shares carry a dividend payout rate of 16,10% and
will be redeemed at a 5,75% premium after four years. The premium is paid
one year after the redemption date. 4. GlucoCare Limited aims to maintain a
debt:equity ratio of 1:1 going forward (based on book values). 5. To meet
rising demand for GlucoTrack-Lite, GlucoCare plans to purchase automated
assembly machinery for R690 million (project start date: 1 June 2025). The
company will use this infrastructure for 5 years in full production before
scrapping it for R57,5 million. Depreciation is R138 million per year. The
required working capital is R115 million, with 80% recovered at the end of
the project. 6. Expected annual production units (devices) for which demand
exists is calculated at per annum. 7. The budgeted fixed costs for production
are R34,5 million per month, and the selling price for the first year is R180
per device. Selling price growth is expected to match the inflation rate of 3%
per annum for the project’s duration. The contribution margin is fixed at 35%
on sales. 8. Financing options for the new machinery: o Issue new ordinary
shares (retained earnings cannot be used). o Loan from Centra Bank of R460
million at prime rate. o Top-up loan from FNB Bank of R126 million at
13,50%, the same as the existing loan rate (considered fair market). o Loans
must be taken in the full amounts available. 9. The corporate tax rate is 27%.
Capital allowance on manufacturing machinery is 25% per annum. The prime
lending rate is 10,50% and is expected to remain unchanged. REQUIRED (a)
Advise GlucoCare Limited’s board of directors whether the new machinery
should be purchased by calculating the net present value of the project.
Assume an expected rate of return of 16%. You may assume tax is payable
in the same year as calculated and accrued. [Round answers to the nearest
rand]. (17)
To determine if GlucoCare Limited should purchase the new machinery, we must calculate the
project's net present value (NPV). A positive NPV indicates the project is financially viable and
should be accepted, while a negative NPV suggests it should be rejected. The calculation
, involves several steps, including determining the initial investment, calculating the annual cash
flows over the project's life, and finding the present value of all cash flows.
1. Initial Investment
The initial investment includes the cost of the machinery and the required working capital.
Cost of machinery: R690,000,000
Working capital: R115,000,000
Total initial investment: R690,000,000 + R115,000,000 = R805,000,000
2. Annual Cash Flows
The annual cash flows are calculated by adding back non-cash expenses (depreciation) to the
after-tax profit. We also need to consider the tax shield from capital allowances and the working
capital recovery at the end of the project.
Annual Production and Revenue
First, we need to find the number of units produced. We can use the information provided about
fixed costs and the contribution margin to work backward.
Fixed costs per month: R34,500,000
Fixed costs per year: R34,500,000 * 12 = R414,000,000
Contribution margin ratio: 35% (0.35)
Total sales revenue (Year 1): Fixed costs / Contribution margin ratio = R414,000,000 /
0.35 = R1,182,857,143
Selling price (Year 1): R180 per device
Annual production units: Total sales revenue / Selling price = R1,182,857, =
6,571,429 units
Next, we calculate the annual revenue and profit before tax for each of the five years, accounting
for the 3% annual inflation.
Year Sales (R) Variable Costs (R) Fixed Costs (R) Depreciation (R)
1 1,182,857,143 768,857,143 414,000,000 138,000,000
2 1,218,342,157 791,957,402 414,000,000 138,000,000
3 1,254,892,422 815,716,154 414,000,000 138,000,000
4 1,292,539,195 840,187,027 414,000,000 138,000,000
5 1,331,315,371 865,392,636 414,000,000 138,000,000
Export to Sheets
Note: Variable costs are calculated as Sales * (1 - Contribution Margin Ratio) = Sales *
0.65
MAC3702 Assignment 2
(COMPLETE ANSWERS)
Semester 2 2025 - DUE 12
September 2025
NO PLAGIARISM
[Year]
,Exam (elaborations)
MAC3702 Assignment 2 (COMPLETE
ANSWERS) Semester 2 2025 - DUE 12
September 2025
Course
Application of Financial Management Techniques (MAC3702)
Institution
University Of South Africa (Unisa)
Book
Managerial Finance
MAC3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2025 - DUE 12
September 2025; 100% TRUSTED Complete, trusted solutions and
explanationsEnsure your success with us
QUESTION 1 (72 marks) GlucoCare Limited is a healthcare technology and
pharmaceutical company based in Johannesburg, Gauteng. The company is
dedicated to making diabetes management more affordable and accessible
to patients across South Africa. In early 2024, GlucoCare identified that one
of the biggest barriers for diabetic patients is the high cost of continuous
glucose monitoring (CGM) systems and insulin delivery devices. In response,
the company developed GlucoTrack-Lite, a compact, wearable glucose
monitor that pairs with a smartphone app and provides real-time blood sugar
readings at a fraction of the cost of traditional CGM devices. The device also
incorporates a smart alert system to notify users — and their doctors — of
dangerous fluctuations, potentially preventing severe complications.
Remarkably, early testing showed that patients using GlucoTrack-Lite
improved their average glucose stability within 3–5 days of use — far quicker
than the several weeks usually required for behavioural and dosage
adjustments to show measurable benefits. GlucoCare Limited’s mission is to
become the leading provider of affordable diabetes management solutions in
South Africa, believing that effective monitoring and timely intervention can
significantly reduce hospital admissions and long-term complications for
diabetic patients. The breakthrough attracted the attention of the National
Department of Health, which awarded GlucoCare a grant to roll out a
national pilot project. During the pilot phase, the company distributed
GlucoTrack-Lite devices to public clinics, endocrinology practices, and select
pharmacies nationwide, receiving overwhelmingly positive feedback from
patients and healthcare providers. The pilot phase cost is R575 000. The
following financial information was sourced from GlucoCare Limited’s
integrated annual report: The earnings before tax for the year ending 31 May
,2025 were correctly calculated at R (2024: R). The industry norm for return
on assets is 8%, the debt-to-equity ratio norm is 1:1, and the total assets-to-
total liabilities norm is 4 times. Extract from the Statement of Financial
Position at 31 May 2025: Notes R’000 Ordinary shares 1,2 575 000 Retained
income 2 828 000 Shareholders’ capital and reserves 1 403 000 14,5%
Preference shares 3 138 000 Long term loan – FNB Bank (13,50%) 782 000
Total equity and liabilities 2 323 000 Additional information 1. The ordinary
shares were issued at R9,20 per share. The current market price for ordinary
shares is R172,50 per share. New issues will have no effect on this price,
although ordinary share issue costs will be 3,45% of the current market
price. 2. An ordinary share dividend of 121,28 cents was paid for the 2024
financial year-end (2023: 110,25 cents; 2022: 100,22 cents). The GlucoCare
Limited Board intends to maintain the average historical growth in dividends
of 10%. ASSIGNMENT 2 SEMESTER 2 - 2025 4 3. The preference shares were
issued at R92 per share. Preference shares in the same risk class currently
yield 13,42%. Preference shares carry a dividend payout rate of 16,10% and
will be redeemed at a 5,75% premium after four years. The premium is paid
one year after the redemption date. 4. GlucoCare Limited aims to maintain a
debt:equity ratio of 1:1 going forward (based on book values). 5. To meet
rising demand for GlucoTrack-Lite, GlucoCare plans to purchase automated
assembly machinery for R690 million (project start date: 1 June 2025). The
company will use this infrastructure for 5 years in full production before
scrapping it for R57,5 million. Depreciation is R138 million per year. The
required working capital is R115 million, with 80% recovered at the end of
the project. 6. Expected annual production units (devices) for which demand
exists is calculated at per annum. 7. The budgeted fixed costs for production
are R34,5 million per month, and the selling price for the first year is R180
per device. Selling price growth is expected to match the inflation rate of 3%
per annum for the project’s duration. The contribution margin is fixed at 35%
on sales. 8. Financing options for the new machinery: o Issue new ordinary
shares (retained earnings cannot be used). o Loan from Centra Bank of R460
million at prime rate. o Top-up loan from FNB Bank of R126 million at
13,50%, the same as the existing loan rate (considered fair market). o Loans
must be taken in the full amounts available. 9. The corporate tax rate is 27%.
Capital allowance on manufacturing machinery is 25% per annum. The prime
lending rate is 10,50% and is expected to remain unchanged. REQUIRED (a)
Advise GlucoCare Limited’s board of directors whether the new machinery
should be purchased by calculating the net present value of the project.
Assume an expected rate of return of 16%. You may assume tax is payable
in the same year as calculated and accrued. [Round answers to the nearest
rand]. (17)
To determine if GlucoCare Limited should purchase the new machinery, we must calculate the
project's net present value (NPV). A positive NPV indicates the project is financially viable and
should be accepted, while a negative NPV suggests it should be rejected. The calculation
, involves several steps, including determining the initial investment, calculating the annual cash
flows over the project's life, and finding the present value of all cash flows.
1. Initial Investment
The initial investment includes the cost of the machinery and the required working capital.
Cost of machinery: R690,000,000
Working capital: R115,000,000
Total initial investment: R690,000,000 + R115,000,000 = R805,000,000
2. Annual Cash Flows
The annual cash flows are calculated by adding back non-cash expenses (depreciation) to the
after-tax profit. We also need to consider the tax shield from capital allowances and the working
capital recovery at the end of the project.
Annual Production and Revenue
First, we need to find the number of units produced. We can use the information provided about
fixed costs and the contribution margin to work backward.
Fixed costs per month: R34,500,000
Fixed costs per year: R34,500,000 * 12 = R414,000,000
Contribution margin ratio: 35% (0.35)
Total sales revenue (Year 1): Fixed costs / Contribution margin ratio = R414,000,000 /
0.35 = R1,182,857,143
Selling price (Year 1): R180 per device
Annual production units: Total sales revenue / Selling price = R1,182,857, =
6,571,429 units
Next, we calculate the annual revenue and profit before tax for each of the five years, accounting
for the 3% annual inflation.
Year Sales (R) Variable Costs (R) Fixed Costs (R) Depreciation (R)
1 1,182,857,143 768,857,143 414,000,000 138,000,000
2 1,218,342,157 791,957,402 414,000,000 138,000,000
3 1,254,892,422 815,716,154 414,000,000 138,000,000
4 1,292,539,195 840,187,027 414,000,000 138,000,000
5 1,331,315,371 865,392,636 414,000,000 138,000,000
Export to Sheets
Note: Variable costs are calculated as Sales * (1 - Contribution Margin Ratio) = Sales *
0.65
