MAC2602
Assessmnet 3
Question 1:
1.1 b
1.2 d
1.3 d
1.4 a
1.5 c
, MAC2602
Assessmnet 3
Question 2:
Part A:
a) Transco Ltd: The situation pertains to a Replacement Capital Expenditure. Buying a new truck to replace
the old one, which had its engine irreparably damaged by diesel contamination, qualifies as a
replacement capital expenditure. This is because the new truck is essentially taking the place of the old
truck, and its cost exceeds the book value of the old one.
b) Gate-Motors Ltd: The spending in this situation is categorized as Betterment Capital Expenditure. By
swapping out the old engine and gearbox to refurbish the machine, it indicates an enhancement in the
effectiveness and performance of the current asset, meeting the criteria for betterment capital
expenditure.
c) OPPO Plc: This scenario represents an Expansion Capital Expenditure. The acquisition of "Face-Tech"
with state-of-the-art technology in face recognition technology represents an expansion of OPPO's
capabilities and market competitiveness. This strategic acquisition enables OPPO to enter a new market
segment, making it an expansion capital expenditure.
Part B:
a) Environmental Factors
Carbon Emissions: VolleyMasters need to take into account the environmental effects of their activities,
especially when it comes to the release of carbon emissions during the transportation of equipment and
the hosting of events. Introducing sustainable transportation and energy-saving methods can help
minimize this impact.
Ethical Factors
Fair Labor Practices: It's important for the company to guarantee that employees and suppliers are
treated fairly, which includes providing fair wages and ensuring safe working conditions. This is vital for
conducting business ethically and upholding a positive brand reputation.
Social Factors
Engagement with the Community: VolleyMasters should think about how their events affect the nearby
community. It is possible to improve these towns' reputations and social influence by getting involved
with them, supporting neighborhood businesses, and making charitable contributions.
b)
c) To calculate the effective interest rate for Mr. Float Serve's suggestion, we can use the formula:
Effective Interest Rate = (Future Value / Present Value)^(1/n) - 1
Where:
Future Value = R8,000,000
Present Value = Proposed amount
n = Number of years (3)
Substituting the values:
Effective Interest Rate = (8,000,000 / Proposed amount)^(1/3) - 1
Investment Recommendation
Given the company's target rate of return of 16%, we can compare the effective interest rate calculated
in part c(i) with the company's target rate.
If the effective interest rate calculated in part c(i) is greater than 16%, then Mr. Float Serve's suggestion
would be more beneficial. Otherwise, the company should choose the investment option with a net cash
inflow.
Based on this comparison, the company should choose the investment option that offers the highest
effective interest rate or net cash inflow, depending on the comparison with the company's target rate of
return.
d)
(i)
(ii)
Assessmnet 3
Question 1:
1.1 b
1.2 d
1.3 d
1.4 a
1.5 c
, MAC2602
Assessmnet 3
Question 2:
Part A:
a) Transco Ltd: The situation pertains to a Replacement Capital Expenditure. Buying a new truck to replace
the old one, which had its engine irreparably damaged by diesel contamination, qualifies as a
replacement capital expenditure. This is because the new truck is essentially taking the place of the old
truck, and its cost exceeds the book value of the old one.
b) Gate-Motors Ltd: The spending in this situation is categorized as Betterment Capital Expenditure. By
swapping out the old engine and gearbox to refurbish the machine, it indicates an enhancement in the
effectiveness and performance of the current asset, meeting the criteria for betterment capital
expenditure.
c) OPPO Plc: This scenario represents an Expansion Capital Expenditure. The acquisition of "Face-Tech"
with state-of-the-art technology in face recognition technology represents an expansion of OPPO's
capabilities and market competitiveness. This strategic acquisition enables OPPO to enter a new market
segment, making it an expansion capital expenditure.
Part B:
a) Environmental Factors
Carbon Emissions: VolleyMasters need to take into account the environmental effects of their activities,
especially when it comes to the release of carbon emissions during the transportation of equipment and
the hosting of events. Introducing sustainable transportation and energy-saving methods can help
minimize this impact.
Ethical Factors
Fair Labor Practices: It's important for the company to guarantee that employees and suppliers are
treated fairly, which includes providing fair wages and ensuring safe working conditions. This is vital for
conducting business ethically and upholding a positive brand reputation.
Social Factors
Engagement with the Community: VolleyMasters should think about how their events affect the nearby
community. It is possible to improve these towns' reputations and social influence by getting involved
with them, supporting neighborhood businesses, and making charitable contributions.
b)
c) To calculate the effective interest rate for Mr. Float Serve's suggestion, we can use the formula:
Effective Interest Rate = (Future Value / Present Value)^(1/n) - 1
Where:
Future Value = R8,000,000
Present Value = Proposed amount
n = Number of years (3)
Substituting the values:
Effective Interest Rate = (8,000,000 / Proposed amount)^(1/3) - 1
Investment Recommendation
Given the company's target rate of return of 16%, we can compare the effective interest rate calculated
in part c(i) with the company's target rate.
If the effective interest rate calculated in part c(i) is greater than 16%, then Mr. Float Serve's suggestion
would be more beneficial. Otherwise, the company should choose the investment option with a net cash
inflow.
Based on this comparison, the company should choose the investment option that offers the highest
effective interest rate or net cash inflow, depending on the comparison with the company's target rate of
return.
d)
(i)
(ii)
