MAC3702
EXAM PACK
, lOMoARcPSD|18222662
MAC3702
MAY/JUNE 2025
QUESTION 1 [40 Marks 72 minutes]
Background:
Three South African entrepreneurs, ZaneleMthethwa, Thandi Dlamini, and Lerato Molefe, have
T U V
come together to develop an innovative AI (artificial inteliigence) application aimed at
revolutionising the property viewing experience. Each of these women runs her own business
assisting clients in finding luxury (high-end) rental homes. They manage properties on behalf of
homeowners. Their clients are typically wealthy individuals who are very busy and often do not
have the time to visit multiple properties in person.
Zanele, Thandi, and Lerato noticed that many of their clients want a more convenient way to view
T U V
rental properties without spending hours traveling to different locations. To solve this problem,
they came up with the idea of creating a mobile application (app) that allows clients to view
properties virtually. The app will use advanced technology, like artificial intelligence (AI) and
virtual reality (VR), to give clients a realistic, interactive experience of walking through a property
from the comfort of their own homes. This way, clients can explore the layout, design, and
features of luxurious homes without being physically present.
The app will be owned and managed in a new company formed by Zanele , Thandi, and Lerato T U V
called Are-Ageng (Pty) Ltd, which will oversee the development, marketing, and operational
TE NG
aspects of the application.
The following information relates to Are-Ageng (Pty) Ltd business case: TE NG
1. Initial Investment: The project will require an initial investment of R2 million, which includes 9
a hardware system costing R900 000 for servers and computing units to process data and
9
run the AI application. The remainder of the cost of R1 ,1 million are made up of software 9
development, covering design, coding, testing, and deployment, costing.
2. The project also requires R200000 injection of working capital at the beginning of the project.
9
3. Are-Ageng (Pty) Ltd anticipates a growing number of property viewings by potential clients
TE NG
over the next four years. In the first year, the company expects 2500 viewings, increasing to 9
3 000 in the second year, 4 000 in the third year, and 4 500 in the fourth year. Each viewing
9 9 9
will generate revenue of R500. 9
4. The company will incur several operational costs associated with maintaining and securing
the app. IT maintenance costs are estimated at R150 000 per year, while IT security costs 9
will amount to R50 000 annually. In addition to these fixed IT costs, cloud storage will also
9
be necessary to handle the data from virtual viewings. The cloud storage cost includes a
fixed annual fee of R15 000, plus a variable cost of R50 per viewing.
9 9
5. To manage customer bookings and coordinate property viewings, Are-Ageng(Pty) Ltd will TENG
employ administrators. Each administrator can handle up to 3000 viewings per year. In the 9
first and second years, one administrator will be sufficient, costing R2
50 000 per year. 9
However, as the number of viewings increases to 4000 and 4 500 in the third and fourth 9 9
years respectively, an additional administrator will be required.
CONFIDENTIAL Page 3 of 11 [TURN OV
, lOMoARcPSD|18222662
MAC3702
MAY/JUNE 2025
QUESTION 1 (continued)
6. According to South African Revenue Services, Are-Ageng (Pty) Ltd can deduct the costs TENG
associated with the app development as follows:
• The cost of the hardware system will be deductible over three years.
• The software development and licensing costs will be deductible over four years.
7. Are-Ageng (Pty) Ltd will have a target Weighted Average Cost of Capital (WACC) of 16
TE NG %. ,5
8. The app has an expected lifespan of four years after which a new app will have to be
developed.
9. The corporate tax rate is 27%.
Zanele, Thandi , and Lerato can afford to contribute the initial investment of R2 million required
T U V
and will demand a target return of at least 17% for any investment made from their own pockets.
Are-Ageng does not have any other projects except for the AI project. Zaneleis not comfortable
TE NG T
with the three partners making an equity contribution of R2 million towards the investment.
9
Instead, she insists that the entire project should be financed through external funding. After
exploring various options, she is proposing that Are-Agengconsiders the following loan option:
TE NG
Long-Term Loan from a Government Initiative
This loan is offered to qualifying companies under a government initiative that advocates for and
supports the development of women in South Africa. Loans under this initiative are only available
to South African women with innovative business offerings, primarily those investing in new
technology.
The loan amount is for R2 million with an interest rate of 12% per annum compounded annually.
,5
The loan capital amount is repayable at the end of a four-year term, at a premium of 5% on the ,5
principal amount. Interest is payable at the end of every two years.
The loan is secured, with shares in Are-Ageng (Pty) Ltd being ceded to the government agency
TENG
as security until the loan and the interest is fully paid. Issue costs amounting to 2% of the loan
amount are deductible from the loan amount when it is made available.
CONFIDENTIAL Page 4 of 11 [TURN OV
, lOMoARcPSD|18222662
MAC3702
MAY/JUNE 2025
QUESTION 1 (continued)
REQUIRED:
For each question below, remember to:
• Clearly show all your calculations in detail;
• Where necessary, indicate irrelevant amounts/adjustments with a R0 (nil-value); and
round all your workings to two decimals.
Using the principles of Net Present Value, advise Zanele, T
Thandi, and Lerato on whether they should proceed with the
U V
investment in the mobile AI project-Are-Ageng(Pty) Ltid. (20)
a)
TENG
Please provide your answer in the format provided below:
Year 0 Year 1 Year 2 Year 3 Year 4
Evaluate which of the two financing options would be the most
cost-effective choice for Are-Ageng (Pty) Ltd. The options to
TENG
b) consider include using the partners' own funds as equity or (10)
securing a long-term loan from a government initiative.
Ignore non-financial factors in making this evaluation.
Discuss the factors that must be considered by the three (6)
c) entrepreneurs in financing mobile AI project through the
proposed loan.
Please discuss the factors under the following headings
• Financing possibilities
• Capital Structure
• Impact
• Matching of cash flows
Discuss the non-financial factors that must be considered by (4)
d) the three entrepreneurs in making the Investment decision.
Please discuss the non-financial factors under the following
headings
• Project Feasibility
• Customer reaction/readiness
Total Question 1 (40)
CONFIDENTIAL Page 5 of 11 [TURN OV
EXAM PACK
, lOMoARcPSD|18222662
MAC3702
MAY/JUNE 2025
QUESTION 1 [40 Marks 72 minutes]
Background:
Three South African entrepreneurs, ZaneleMthethwa, Thandi Dlamini, and Lerato Molefe, have
T U V
come together to develop an innovative AI (artificial inteliigence) application aimed at
revolutionising the property viewing experience. Each of these women runs her own business
assisting clients in finding luxury (high-end) rental homes. They manage properties on behalf of
homeowners. Their clients are typically wealthy individuals who are very busy and often do not
have the time to visit multiple properties in person.
Zanele, Thandi, and Lerato noticed that many of their clients want a more convenient way to view
T U V
rental properties without spending hours traveling to different locations. To solve this problem,
they came up with the idea of creating a mobile application (app) that allows clients to view
properties virtually. The app will use advanced technology, like artificial intelligence (AI) and
virtual reality (VR), to give clients a realistic, interactive experience of walking through a property
from the comfort of their own homes. This way, clients can explore the layout, design, and
features of luxurious homes without being physically present.
The app will be owned and managed in a new company formed by Zanele , Thandi, and Lerato T U V
called Are-Ageng (Pty) Ltd, which will oversee the development, marketing, and operational
TE NG
aspects of the application.
The following information relates to Are-Ageng (Pty) Ltd business case: TE NG
1. Initial Investment: The project will require an initial investment of R2 million, which includes 9
a hardware system costing R900 000 for servers and computing units to process data and
9
run the AI application. The remainder of the cost of R1 ,1 million are made up of software 9
development, covering design, coding, testing, and deployment, costing.
2. The project also requires R200000 injection of working capital at the beginning of the project.
9
3. Are-Ageng (Pty) Ltd anticipates a growing number of property viewings by potential clients
TE NG
over the next four years. In the first year, the company expects 2500 viewings, increasing to 9
3 000 in the second year, 4 000 in the third year, and 4 500 in the fourth year. Each viewing
9 9 9
will generate revenue of R500. 9
4. The company will incur several operational costs associated with maintaining and securing
the app. IT maintenance costs are estimated at R150 000 per year, while IT security costs 9
will amount to R50 000 annually. In addition to these fixed IT costs, cloud storage will also
9
be necessary to handle the data from virtual viewings. The cloud storage cost includes a
fixed annual fee of R15 000, plus a variable cost of R50 per viewing.
9 9
5. To manage customer bookings and coordinate property viewings, Are-Ageng(Pty) Ltd will TENG
employ administrators. Each administrator can handle up to 3000 viewings per year. In the 9
first and second years, one administrator will be sufficient, costing R2
50 000 per year. 9
However, as the number of viewings increases to 4000 and 4 500 in the third and fourth 9 9
years respectively, an additional administrator will be required.
CONFIDENTIAL Page 3 of 11 [TURN OV
, lOMoARcPSD|18222662
MAC3702
MAY/JUNE 2025
QUESTION 1 (continued)
6. According to South African Revenue Services, Are-Ageng (Pty) Ltd can deduct the costs TENG
associated with the app development as follows:
• The cost of the hardware system will be deductible over three years.
• The software development and licensing costs will be deductible over four years.
7. Are-Ageng (Pty) Ltd will have a target Weighted Average Cost of Capital (WACC) of 16
TE NG %. ,5
8. The app has an expected lifespan of four years after which a new app will have to be
developed.
9. The corporate tax rate is 27%.
Zanele, Thandi , and Lerato can afford to contribute the initial investment of R2 million required
T U V
and will demand a target return of at least 17% for any investment made from their own pockets.
Are-Ageng does not have any other projects except for the AI project. Zaneleis not comfortable
TE NG T
with the three partners making an equity contribution of R2 million towards the investment.
9
Instead, she insists that the entire project should be financed through external funding. After
exploring various options, she is proposing that Are-Agengconsiders the following loan option:
TE NG
Long-Term Loan from a Government Initiative
This loan is offered to qualifying companies under a government initiative that advocates for and
supports the development of women in South Africa. Loans under this initiative are only available
to South African women with innovative business offerings, primarily those investing in new
technology.
The loan amount is for R2 million with an interest rate of 12% per annum compounded annually.
,5
The loan capital amount is repayable at the end of a four-year term, at a premium of 5% on the ,5
principal amount. Interest is payable at the end of every two years.
The loan is secured, with shares in Are-Ageng (Pty) Ltd being ceded to the government agency
TENG
as security until the loan and the interest is fully paid. Issue costs amounting to 2% of the loan
amount are deductible from the loan amount when it is made available.
CONFIDENTIAL Page 4 of 11 [TURN OV
, lOMoARcPSD|18222662
MAC3702
MAY/JUNE 2025
QUESTION 1 (continued)
REQUIRED:
For each question below, remember to:
• Clearly show all your calculations in detail;
• Where necessary, indicate irrelevant amounts/adjustments with a R0 (nil-value); and
round all your workings to two decimals.
Using the principles of Net Present Value, advise Zanele, T
Thandi, and Lerato on whether they should proceed with the
U V
investment in the mobile AI project-Are-Ageng(Pty) Ltid. (20)
a)
TENG
Please provide your answer in the format provided below:
Year 0 Year 1 Year 2 Year 3 Year 4
Evaluate which of the two financing options would be the most
cost-effective choice for Are-Ageng (Pty) Ltd. The options to
TENG
b) consider include using the partners' own funds as equity or (10)
securing a long-term loan from a government initiative.
Ignore non-financial factors in making this evaluation.
Discuss the factors that must be considered by the three (6)
c) entrepreneurs in financing mobile AI project through the
proposed loan.
Please discuss the factors under the following headings
• Financing possibilities
• Capital Structure
• Impact
• Matching of cash flows
Discuss the non-financial factors that must be considered by (4)
d) the three entrepreneurs in making the Investment decision.
Please discuss the non-financial factors under the following
headings
• Project Feasibility
• Customer reaction/readiness
Total Question 1 (40)
CONFIDENTIAL Page 5 of 11 [TURN OV
