MAC2602 ASSIGNMENT 1 2026
DUE 8 SEPTEMBER 2026
PART A: Capital Investments & Capital Budgeting Techniques (44 marks; 53
minutes)
A1: Economic, Social, Environmental, and Governance Factors (16 marks)
Economic Factors:
Fuel price volatility - The war in the Middle East causes fuel price instability,
increasing distribution costs and affecting profitability.
Commodity price decline - Reduced maize prices affect cost of sales, potentially
improving gross profit margins.
Geopolitical uncertainty - Affects business confidence, consumer spending, and
operational planning.
Interest rate risk - The 11% long-term loan exposes PG to interest rate fluctuations.
(Study Unit 1 & 3 - Stakeholder analysis and environmental factors; Strategy concepts)
Social Factors:
Labour union concerns - Unions raised issues about hiring illegal immigrants,
creating reputational and operational risks.
Employment practices - Prioritising local hiring improves community relations but
may increase labour costs.
, Environmental Factors:
Environmental footprint challenges - Grain mills and food plants face environmental
compliance issues, potentially requiring costly upgrades.
Environmental assessment study - R400,000 spent on environmental assessment
indicates regulatory compliance requirements.
Governance Factors:
Due diligence process - R1,000,000 spent on legal due diligence demonstrates
proper governance procedures.
Stakeholder management - Board must manage labour relations, community
concerns, and shareholder interests.
(Study Unit 1 & 3 - Stakeholder analysis and environmental factors; Strategy concepts)
A2: NPV Calculation
Relevant Cash Flows
Irrelevant amounts (R0):
Environmental assessment study: R400,000 (sunk cost)
Law firm due diligence: R1,000,000 (sunk cost)
Specialist valuation cost: R500,000 (sunk cost)
Interest expense on loan: NOT included (financing cost handled by WACC)
, Working Capital Requirements:
Year Working Capital Cash Flow Impact
1 R5,000,000 (R5,000,000) outflow
2 R6,000,000 (R1,000,000) additional outflow
3 R0 R6,000,000 recouped
Taxation Calculation:
Details Year 1 Year 2 Year 3
Operating Profit before interest & R105,000,000 R110,000,000 R120,000,000
depreciation
Less: Wear & Tear (10% × (R100,000,000) (R100,000,000) (R100,000,000)
R1,000,000,000)
Less: Scrapping allowance - - (R40,000,000)*
Taxable Income R5,000,000 R10,000,000 (R20,000,000)
Tax @ 27% (R1,350,000) (R2,700,000) R5,400,000
Scrapping allowance
Cost of machines: R1,000,000,000
W&T @ 10% for 3 years: (R300,000,000)
Tax value end Year 3: R700,000,000
Proceeds from machines: R800,000,000
Loss/(Gain): R100,000,000 (Taxable recoupment)
Wait - correction:
Cost: R1,000,000,000
W&T Year 1: (100,000,000) = R900,000,000
DUE 8 SEPTEMBER 2026
PART A: Capital Investments & Capital Budgeting Techniques (44 marks; 53
minutes)
A1: Economic, Social, Environmental, and Governance Factors (16 marks)
Economic Factors:
Fuel price volatility - The war in the Middle East causes fuel price instability,
increasing distribution costs and affecting profitability.
Commodity price decline - Reduced maize prices affect cost of sales, potentially
improving gross profit margins.
Geopolitical uncertainty - Affects business confidence, consumer spending, and
operational planning.
Interest rate risk - The 11% long-term loan exposes PG to interest rate fluctuations.
(Study Unit 1 & 3 - Stakeholder analysis and environmental factors; Strategy concepts)
Social Factors:
Labour union concerns - Unions raised issues about hiring illegal immigrants,
creating reputational and operational risks.
Employment practices - Prioritising local hiring improves community relations but
may increase labour costs.
, Environmental Factors:
Environmental footprint challenges - Grain mills and food plants face environmental
compliance issues, potentially requiring costly upgrades.
Environmental assessment study - R400,000 spent on environmental assessment
indicates regulatory compliance requirements.
Governance Factors:
Due diligence process - R1,000,000 spent on legal due diligence demonstrates
proper governance procedures.
Stakeholder management - Board must manage labour relations, community
concerns, and shareholder interests.
(Study Unit 1 & 3 - Stakeholder analysis and environmental factors; Strategy concepts)
A2: NPV Calculation
Relevant Cash Flows
Irrelevant amounts (R0):
Environmental assessment study: R400,000 (sunk cost)
Law firm due diligence: R1,000,000 (sunk cost)
Specialist valuation cost: R500,000 (sunk cost)
Interest expense on loan: NOT included (financing cost handled by WACC)
, Working Capital Requirements:
Year Working Capital Cash Flow Impact
1 R5,000,000 (R5,000,000) outflow
2 R6,000,000 (R1,000,000) additional outflow
3 R0 R6,000,000 recouped
Taxation Calculation:
Details Year 1 Year 2 Year 3
Operating Profit before interest & R105,000,000 R110,000,000 R120,000,000
depreciation
Less: Wear & Tear (10% × (R100,000,000) (R100,000,000) (R100,000,000)
R1,000,000,000)
Less: Scrapping allowance - - (R40,000,000)*
Taxable Income R5,000,000 R10,000,000 (R20,000,000)
Tax @ 27% (R1,350,000) (R2,700,000) R5,400,000
Scrapping allowance
Cost of machines: R1,000,000,000
W&T @ 10% for 3 years: (R300,000,000)
Tax value end Year 3: R700,000,000
Proceeds from machines: R800,000,000
Loss/(Gain): R100,000,000 (Taxable recoupment)
Wait - correction:
Cost: R1,000,000,000
W&T Year 1: (100,000,000) = R900,000,000
