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FIN3701 ASSIGNMENT 1 SEMESTER 1 2026
ANSWERS
DUE DATE: 30 MARCH 2026
Question 1
1.1 Initial Investment
The initial investment required for Bottling Ltd includes the cost of purchasing the new machine,
the two moulds, and the plastic material needed to start production. The machine costs R120 000,
while the two moulds together cost R22 000. In addition, the company needs plastic material valued
at R1 200. The consultant’s fee is not included as it is a sunk cost. Therefore, the total initial
investment required amounts to R143 200.
Item Cost (R)
Machine 120 000
Two moulds 22 000
Plastic material 1 200
Total Initial Investment 143 200
1.2 Operating Cash Inflows
For year one, sales are expected to be R80 000. Variable costs are 15% of sales, which amounts to
R12 000, and fixed costs are R4 500 per year. Depreciation on the machine is calculated as R46 200
per year. After accounting for these costs, the earnings before tax for year one is R17 300. Tax at
29% reduces this by R5 017, leaving net income of R12 283. Adding back depreciation (a non-cash
expense) results in a total operating cash inflow of R58 483 for year one.
FIN3701 ASSIGNMENT 1 SEMESTER 1 2026
ANSWERS
DUE DATE: 30 MARCH 2026
Question 1
1.1 Initial Investment
The initial investment required for Bottling Ltd includes the cost of purchasing the new machine,
the two moulds, and the plastic material needed to start production. The machine costs R120 000,
while the two moulds together cost R22 000. In addition, the company needs plastic material valued
at R1 200. The consultant’s fee is not included as it is a sunk cost. Therefore, the total initial
investment required amounts to R143 200.
Item Cost (R)
Machine 120 000
Two moulds 22 000
Plastic material 1 200
Total Initial Investment 143 200
1.2 Operating Cash Inflows
For year one, sales are expected to be R80 000. Variable costs are 15% of sales, which amounts to
R12 000, and fixed costs are R4 500 per year. Depreciation on the machine is calculated as R46 200
per year. After accounting for these costs, the earnings before tax for year one is R17 300. Tax at
29% reduces this by R5 017, leaving net income of R12 283. Adding back depreciation (a non-cash
expense) results in a total operating cash inflow of R58 483 for year one.
