MAC3703 Assignment 2 (DETAILED ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED

MAC3703 Assignment 2 (DETAILED ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ,... The foreign exchange market for travellers is a multi-billion pound business shared by established financial institutions. Travellers buy the currency that they need at one exchange rate and then sell any surplus back to the bank at a much lower rate. The gap between the two rates is considerable, particularly in SA, i.e. the existing banks enjoy significant profits from these exchange rates. Many travellers use this service and write off the currency loss as part of the costs of their trip, but many keep the currency in a drawer hoping to use it on a subsequent trip. There are disrupter banks hovering in the wings in this lucrative market. The emergence of disruptor banks has introduced the concept of multi-currency bank accounts, where an individual account holder can have a bank account in multiple currencies. Consequently, a traveller in this position can simply “bank” their spare currency rather than convert it back after their trip. Aligned with this is the concept of peer-to-peer transactions where, via an app, two unconnected individuals can agree to transfer currency between each other at a rate where both benefit (compared to the bank’s buy and sell rate). This creates the vital win/win scenario, which is the bedrock of great ideas. The amounts per transaction are often small, but the volume could be huge, and the disrupter banks involved see it as a way of rapidly increasing customer numbers and making a small margin on every transaction (significantly smaller than what is currently being made but requiring no further involvement once the programming is complete). The established banks are worried about this development as it represents yet another lucrative element of the financial markets that may be lost. Required: (a) Discuss the risks and benefits of the main strategic options open to the existing banks (established financial institutions) to prevent the loss of the foreign exchange profits that they currently enjoy.The foreign exchange market for travellers is a multi-billion pound business shared by established financial institutions. Travellers buy the currency that they need at one exchange rate and then sell any surplus back to the bank at a much lower rate. The gap between the two rates is considerable, particularly in SA, i.e. the existing banks enjoy significant profits from these exchange XYZF Ltd is a South African factory shop producing clothing for men and women from the age of 16 upwards. XYZF gets all their materials from ABCD Ltd, a local supplier. There are other local suppliers in the country for the materials used by XYZF Ltd. XYZF does not have its own sewing machines and rents them in from company X. The clothes produced by XYZF Ltd are sold to various clothing wholesalers in South Africa, who then supply the local retailers who physically supply the consumers. XYZF Ltd has its own delivery trucks which delivers the clothes from the factory straight to the wholesalers’ premises. Company Y uses various courier companies to deliver the clothes to the local retailers. XYZF Ltd is competing with All Clothing Limited. Although XYZF Ltd does not supply directly to consumers, the directors believe that XYZF Ltd is creating value for the end user and XYZF Ltd is now considering expanding its business by supplying the clothes directly to the consumer through creating and launching an online retail store. The online retail store will be accessible all over the world. The directors of XYZF Ltd have appointed a project team, led by a project manager, to investigate the feasibility of the expansion being considered. The directors have indicated that they will not be appointing a steering committee for the project instead they will be steering the project themselves. The software supplier will be TNX. The instructions in terms of what the investigation should entail are clearly stated and include additional ecosystem participants that will need to be added to the current ecosystem and their roles in the ecosystem, the features for the online store application to ensure value creation, other extra resources, and their costs, amongst others. The project manager has indicated that he is clueless about project management, however he trusts his management and leadership skills. The project management team is obedient, eager to learn and prefer healthy competition, i.e., compete by performing their tasks well. The project manager’s name is John. 4 Required: A. (i) Identify and explain the roles of at least two business ecosystem participants in the current XYZ Ltd ecosystem, and two in the new ecosystem resulting from the introduction of the online retail store. (6) (ii) Identify and explain at least two features that need to be present for the online store application to satisfy digital customer needs. Your explanation should be specific to XYZ Ltd and clearly indicate the benefits to digital customers. (4) (iii) What would be the effect of introducing the online retail store to XYZ Ltd business value creation? (4) (iv) Assuming that XYZ Ltd profit before tax is R2m (fully taxable), tax rate is 28% and they have a policy of distributing 20% of their profit after tax as a dividend to their shareholders, demonstrate how residual value is captured and shared (show all your workings). (4) B. (i) Differentiate between the term management and leadership in relation to the XYZ online retail store project. (4) (ii) Which leadership style do you think the project manager should adopt in managing the XYZ project and why? (6) (iii) Based on the culture of the project team, advise the project manager of the performance appraisal approach he should adopt in monitoring and controlling the performance of the project team. Your answer should highlight how benefits outweigh shortfalls of the recommended approach. (14) C. (i) Discuss the feasibility of the creation and launching of the online store. (8) (ii) Draft a project identification document for the online retail store project. Many travellers use this service and write off the currency loss as part of the costs of their trip, but many keep the currency in a drawer hoping to use it on a subsequent trip. There are disrupter banks hovering in the wings in this lucrative market. The emergence of disruptor banks has introduced the concept of multi-currency bank accounts, where an individual account holder can have a bank account in multiple currencies. Consequently, a traveller in this position can simply “bank” their spare currency rather than convert it back after their trip. Aligned with this is the concept of peer-to-peer transactions where, via an app, two unconnected individuals can agree to transfer currency between each other at a rate where both benefit (compared to the bank’s buy and sell rate). This creates the vital win/win scenario, which is the bedrock of great ideas. The amounts per transaction are often small, but the volume could be huge, and the disrupter banks involved see it as a way of rapidly increasing customer numbers and making a small margin on every transaction (significantly smaller than what is currently being made but requiring no further involvement once the programming is complete). The established banks are worried about this development as it represents yet another lucrative element of the financial markets that may be lost. Required: (a) Discuss the risks and benefits of the main strategic options open to the existing banks (established financial institutions) to prevent the loss of the foreign exchange profits that they currently enjoy.The foreign exchange market for travellers is a multi-billion pound business shared by established financial institutions. Travellers buy the currency that they need at one exchange rate and then sell any surplus back to the bank at a much lower rate. The gap between the two rates is considerable, particularly in SA, i.e. the existing banks enjoy significant profits from these exchange rates. Many travellers use this service and write off the currency loss as part of the costs of their trip, but many keep the currency in a drawer hoping to use it on a subsequent trip. There are disrupter banks hovering in the wings in this lucrative market. The emergence of disruptor banks has introduced the concept of multi-currency bank accounts, where an individual account holder can have a bank account in multiple currencies. Consequently, a traveller in this position can simply “bank” their spare currency rather than convert it back after their trip. Aligned with this is the concept of peer-to-peer transactions where, via an app, two unconnected individuals can agree to transfer currency between each other at a rate where both benefit (compared to the bank’s buy and sell rate). This creates the vital win/win scenario, which is the bedrock of great ideas. The amounts per transaction are often small, but the volume could be huge, and the disrupter banks involved see it as a way of rapidly increasing customer numbers and making a small margin on every transaction (significantly smaller than what is currently being made but requiring no further involvement once the programming is complete). The established banks are worried about this development as it represents yet another lucrative element of the financial markets that may be lost. Required: (a) Discuss the risks and benefits of the main strategic options open to the existing banks (established financial institutions) to prevent the loss of the foreign exchange profits that they currently enjoy. A manufacturing company, TechGear Industries, specializes in producing electronic home appliances. Their cash cow is a smart kitchen mixer called “MixMaster Pro”. In the last few weeks customers began reporting issues with the mixers overheating during use, causing them to stop working. Upon investigation, the company discovered a defect in the motor wiring of the MixMaster Pro. In response, TechGear decided to issue an immediate recall of 50,000 units sold across the country. As such the board of directors are worried about the impact that the recall will have on their earnings per share (EPS) for the coming financial year ending 30 June 2025. Below is the information relating to the financial year ended 30 June 2024: Description R Profit after taxation 3 600 000 Preference Dividend 1 200 000 Ordinary share Capital (Ordinary shares issued @R1 each) Convertible debt issued (@8% interest per annum) 1 200 000 Convertible debt is convertible on 30 June 2026 on the following terms: • 60 ordinary shares for every R1 200 of the debt amount. • Assume a tax rate of 27% Required: (b) Calculate the basic earnings per share for the year ended 30 June 2024. (1 marks) (c) Calculate the diluted earnings per share for the year ended 30 June 2024. (3 marks) (d) Assuming a decline in the full year earnings due to the product recall and a fresh issue of 10m ordinary shares on the 1st of April 2025 to new AI machinery, calculate the forward-looking basic earnings per share for the year ending 30 June 2025. (6 marks)A manufacturing company, TechGear Industries, specializes in producing electronic home appliances. Their cash cow is a smart kitchen mixer called “MixMaster Pro”. In the last few weeks customers began reporting issues with the mixers overheating during use, causing them to stop working. Upon investigation, the company discovered a defect in the motor wiring of the MixMaster Pro. In response, TechGear decided to issue an immediate recall of 50,000 units sold across the country. As such the board of directors are worried about the impact that the recall will have on their earnings per share (EPS) for the coming financial year ending 30 June 2025. Below is the information relating to the financial year ended 30 June 2024: XYZF Ltd is a South African factory shop producing clothing for men and women from the age of 16 upwards. XYZF gets all their materials from ABCD Ltd, a local supplier. There are other local suppliers in the country for the materials used by XYZF Ltd. XYZF does not have its own sewing machines and rents them in from company X. The clothes produced by XYZF Ltd are sold to various clothing wholesalers in South Africa, who then supply the local retailers who physically supply the consumers. XYZF Ltd has its own delivery trucks which delivers the clothes from the factory straight to the wholesalers’ premises. Company Y uses various courier companies to deliver the clothes to the local retailers. XYZF Ltd is competing with All Clothing Limited. Although XYZF Ltd does not supply directly to consumers, the directors believe that XYZF Ltd is creating value for the end user and XYZF Ltd is now considering expanding its business by supplying the clothes directly to the consumer through creating and launching an online retail store. The online retail store will be accessible all over the world. The directors of XYZF Ltd have appointed a project team, led by a project manager, to investigate the feasibility of the expansion being considered. The directors have indicated that they will not be appointing a steering committee for the project instead they will be steering the project themselves. The software supplier will be TNX. The instructions in terms of what the investigation should entail are clearly stated and include additional ecosystem participants that will need to be added to the current ecosystem and their roles in the ecosystem, the features for the online store application to ensure value creation, other extra resources, and their costs, amongst others. The project manager has indicated that he is clueless about project management, however he trusts his management and leadership skills. The project management team is obedient, eager to learn and prefer healthy competition, i.e., compete by performing their tasks well. The project manager’s name is John. 4 Required: A. (i) Identify and explain the roles of at least two business ecosystem participants in the current XYZ Ltd ecosystem, and two in the new ecosystem resulting from the introduction of the online retail store. (6) (ii) Identify and explain at least two features that need to be present for the online store application to satisfy digital customer needs. Your explanation should be specific to XYZ Ltd and clearly indicate the benefits to digital customers. (4) (iii) What would be the effect of introducing the online retail store to XYZ Ltd business value creation? (4) (iv) Assuming that XYZ Ltd profit before tax is R2m (fully taxable), tax rate is 28% and they have a policy of distributing 20% of their profit after tax as a dividend to their shareholders, demonstrate how residual value is captured and shared (show all your workings). (4) B. (i) Differentiate between the term management and leadership in relation to the XYZ online retail store project. (4) (ii) Which leadership style do you think the project manager should adopt in managing the XYZ project and why? (6) (iii) Based on the culture of the project team, advise the project manager of the performance appraisal approach he should adopt in monitoring and controlling the performance of the project team. Your answer should highlight how benefits outweigh shortfalls of the recommended approach. (14) C. (i) Discuss the feasibility of the creation and launching of the online store. (8) (ii) Draft a project identification document for the online retail store project. Profit after taxation 3 600 000 Preference Dividend 1 200 000 Ordinary share Capital (Ordinary shares issued @R1 each) Convertible debt issued (@8% interest per annum) 1 200 000 Convertible debt is convertible on 30 June 2026 on the following terms: • 60 ordinary shares for every R1 200 of the debt amount. • Assume a tax rate of 27% Required: (b) Calculate the basic earnings per share for the year ended 30 June 2024. (1 marks) (c) Calculate the diluted earnings per share for the year ended 30 June 2024. (3 marks) (d) Assuming a decline in the full year earnings due to the product recall and a fresh issue of 10m ordinary shares on the 1st of April 2025 to new AI machinery, calculate the forward-looking basic earnings per share for the year ending 30 June 2025. (6 marks) Accent Ltd is a global consultancy company specialising in organisational change and restructuring. The service offered to clients usually involves the formation of teams to carry out change projects in companies. The teams are drawn from different areas of Accent Ltd, based around different specialisations. Tim Smith, the HR Director, is concerned that the methods of recruitment and selection for new consultants have emphasised the skills associated with a particular specialisation, for example, marketing expertise, technology or financial technical skills. He feels that insufficient attention has been given to the skills of the project manager, which are essential to the success of the company’s project-based work. As a result, he has recently introduced a new recruitment and selection system, which includes a specification of the skills that the company should be looking for in future project managers. One of the selection tests he has devised will involve candidates delivering a presentation which explains why they may need to use different styles of leadership during a project and provides examples of the other key skills that they feel a project manager should possess. Katlego Danke recently applied for a job in Accent Ltd, specialising in finance. Whilst confident that he has the financial expertise required, he is less certain about the project management skills he might need. He is pleased that he has been short-listed for an interview and is researching what he might include in his presentation. As a result of this, he has asked you to help him to understand the key skills of an effective project manager. Required: (a) Explain to Katlego how an understanding of leadership style theories could help him to be more effective as a project manager. (10 marks) (b) Describe the other project management skills, besides leadership skills, that Katlego should include in his presentation, explaining why they are important. (15 marks)Accent Ltd is a global consultancy company specialising in organisational change and restructuring. The service offered to clients usually involves the formation of teams to carry out change projects in companies. The teams are drawn from different areas of Accent Ltd, based around different specialisations. Tim Smith, the HR Director, is concerned that the methods of recruitment and selection for new consultants have emphasised the skills associated with a particular specialisation, for example, marketing expertise, technology or financial technical skills. He feels that insufficient attention has been given to the skills of the project manager, which are essential to the success of the company’s project-based work. As a result, he has recently introduced a new recruitment and selection system, which includes a specification of the skills that the company should be looking for in future project managers. One of the selection tests he has devised will involve candidates delivering a presentation which explains why they may need to use different styles of leadership during a project and provides examples of the other key skills that they feel a project manager should possess. Katlego Danke recently applied for a job in Accent Ltd, specialising in finance. Whilst confident that he has the financial expertise required, he is less certain about the project management skills he might need. He is pleased that he has been short-listed for an interview and is researching what he might include in his presentation. As a result of this, he has asked you to help him to understand the key skills of an effective project manager. Required: (a) Explain to Katlego how an understanding of leadership style theories could help him to be more effective as a project manager. (10 marks) (b) Describe the other project management skills, besides leadership skills, that Katlego should include in his presentation, explaining why they are important. (15 marks) kiddies tablets called “Joytab” at R1,200 per tablet. Due to competition, its competitors are likely to reduce their selling prices by 15%. Kingdom Kids management are considering responding aggressively by also cutting the price of each toy by 20% and expect the sales current sales volume of 160 000 units per annum to increase by 50 000 units. The company’s directors decided on a 10% target profit on the selling price for all sales. The following is the extract from the company’s current performance reports: Description Quantity Amount (R) Direct manufacturing cost per unit Direct material cost 500 Direct labour cost 60 Direct machine cost 70 Manufacturing overheads No of orders at R80 per order 24 000 orders Testing hours at R2 per hour 4 800 000 hours Units re-worked at R100 per unit 12 000 Other operating expenses per unit Research and design per unit 60 Marketing and customer service per unit Zmaxs Ltd., a shoe manufacturer, reported a profit of R20m for the financial year ended 31 December 2024. Preference dividends for the financial year were R1m. Issued shares as of 31 December 2024 were 50m ordinary shares of R1 each and 10m preference shares, redeemable in 2028. Accumulated surplus was R35m. Tax rate is 15%. In the 2025 financial year Zmaxs Ltd.’s revenue is expected to be R50m, direct labour costs R2m, material costs R15m including any shrinkage (wastage material), fixed costs R5m. Zmaxs Ltd.’s required profit for the 2025 financial year is R35m. Zmaxs Ltd is expected to issue 5m ordinary shares on 1 October 2025 and this is the only expected share issue for 2025. Preference dividend is expected to be R2m. Required: 1. Calculate the total target cost for 2025. (2) 2. Reconcile the target cost to the expected cost and explain the difference. (4) 3. Calculate the basic EPS for 2024 and 2025, interpret the results in relation to the performance of Zmax Ltd., and highlight possible reasons for the change in EPS (2025 compared to 2024). Use the expected cost in determining the profit. (10) 4. Zmax Ltd.’s annual report includes only its statement of financial position, profit or loss and other comprehensive income, and statement of cash flows. Recommend, with reasons, other reports that would be useful to stakeholders of Zmax Ltd. (4) Kingdom Kids has recently introduced a variety of high-end black dolls and would like to apply target costing on these. REQUIRED (a) Define target costing and list at least four benefits of using target costing for their new variety of black dolls. (4 marks) (b) Calculate the current cost per “Joytab”. (5 marks) (c) Calculate the target cost per “Joytab”. (3 marks) (d) Calculate the total profit of “Joytab” based on the current sales volumes and the total profit based on the proposed sales volumes. (5 marks) (e) Advise the company on whether to implement management’s proposed reduction in the selling price for each tablet. (2 marks) (f) What will be the benefits and limitations of implementing Integrated Reporting for Kingdom Kids? (6 marks)kiddies tablets called “Joytab” at R1,200 per tablet. Due to competition, its competitors are likely to reduce their selling prices by 15%. Kingdom Kids management are considering responding aggressively by also cutting the price of each toy by 20% and expect the sales current sales volume of 160 000 units per annum to increase by 50 000 units. The company’s directors decided on a 10% target profit on the selling price for all sales. The following is the extract from the company’s current performance reports: Description Quantity Amount (R) Direct manufacturing cost per unit Direct material cost 500 Direct labour cost 60 Direct machine cost 70 Manufacturing overheads No of orders at R80 per order 24 000 orders Testing hours at R2 per hour 4 800 000 hours Units re-worked at R100 per unit 12 000 Other operating expenses per unit Research and design per unit Zmaxs Ltd., a shoe manufacturer, reported a profit of R20m for the financial year ended 31 December 2024. Preference dividends for the financial year were R1m. Issued shares as of 31 December 2024 were 50m ordinary shares of R1 each and 10m preference shares, redeemable in 2028. Accumulated surplus was R35m. Tax rate is 15%. In the 2025 financial year Zmaxs Ltd.’s revenue is expected to be R50m, direct labour costs R2m, material costs R15m including any shrinkage (wastage material), fixed costs R5m. Zmaxs Ltd.’s required profit for the 2025 financial year is R35m. Zmaxs Ltd is expected to issue 5m ordinary shares on 1 October 2025 and this is the only expected share issue for 2025. Preference dividend is expected to be R2m. Required: 1. Calculate the total target cost for 2025. (2) 2. Reconcile the target cost to the expected cost and explain the difference. (4) 3. Calculate the basic EPS for 2024 and 2025, interpret the results in relation to the performance of Zmax Ltd., and highlight possible reasons for the change in EPS (2025 compared to 2024). Use the expected cost in determining the profit. (10) 4. Zmax Ltd.’s annual report includes only its statement of financial position, profit or loss and other comprehensive income, and statement of cash flows. Recommend, with reasons, other reports that would be useful to stakeholders of Zmax Ltd. (4) Marketing and customer service per unit 150 Kingdom Kids has recently introduced a variety of high-end black dolls and would like to apply target costing on these. REQUIRED (a) Define target costing and list at least four benefits of using target costing for their new variety of black dolls. (4 marks) (b) Calculate the current cost per “Joytab”. (5 marks) (c) Calculate the target cost per “Joytab”. (3 marks) (d) Calculate the total profit of “Joytab” based on the current sales volumes and the total profit based on the proposed sales volumes. (5 marks) (e) Advise the company on whether to implement management’s proposed reduction in the selling price for each tablet. (2 marks) (f) What will be the benefits and limitations of implementing Integrated Reporting for Kingdom Kids? (6 marks)