THE BMZ ACADEMY
THE BMZ ACADEMY
@061 262 053 8213
BMZ ACADEMY 061 262 1185/068 053 8213Page 1 of 26
, THE BMZ ACADEMY
QUESTION 1
Table Format
Year Cash Flow (R) Discount Factor @16% Present Value (R)
0 -805 000 000 1.0000 -805 000 000
1 415 809 000 0.8621 358 467 738.90
2 424 308 870 0.7432 315 346 351.78
3 436 323 986.10 0.6407 279 552 177.79
4 451 144 743.183 0.5523 249 167 201.16
5 617 744 013.725 0.4761 294 107 624.93
NPV 691 641 094.56
Rounded to nearest rand: NPV = R691,641,095
Advice: Since the NPV is positive, GlucoCare Limited should purchase the new
machinery.
Question b) Quantitative Factors
Beyond the net present value (NPV) calculation, the board should conduct a sensitivity
analysis to assess how changes in key variables such as sales volume, production
costs, or inflation rates might impact project returns. It is also important to evaluate the
payback period to understand the project’s liquidity risk and ensure the internal rate of
return (IRR) exceeds the company’s cost of capital. Additionally, the board must
consider potential financing costs and tax implications, including the sustainability of
capital allowances and possible shifts in corporate tax policy.
2|Page BMZ ACADEMY 061 262 1185/068 053 8213
, THE BMZ ACADEMY
Qualitative Factors
The rapid pace of technological change in healthcare presents a risk that the new
machinery could become obsolete before the end of its useful life. Regulatory
compliance is another critical factor; delays or refusals from agencies like SAHPRA
could disrupt production and sales. The company’s reputation is also at stake product
failures or recalls could damage trust among patients and healthcare providers, while
success could enhance GlucoCare’s brand and credibility. Finally, the availability of
skilled operators for the automated equipment may require additional training
investments.
Strategic Factors
The investment strongly aligns with GlucoCare’s mission to improve affordability and
accessibility of diabetes management, potentially solidifying its market leadership. The
project may also create a competitive advantage through lower production costs,
enabling more aggressive pricing. The positive relationship with the National
Department of Health could lead to further opportunities for collaboration or funding.
Scalability is another important consideration; if demand grows, the machinery could
help the company expand into other African markets. Moreover, this investment might
raise entry barriers for competitors and create options for diversifying into other
medical devices in the future.
Question c) Calculate the weighted average cost of capital (WACC) of GlucoCare
Limited based on market values at 31 May 2025 before the acquisition of the new
automated assembly machinery. [Round rand amounts to the nearest cent and
other numbers to two decimal places]
To calculate the Weighted Average Cost of Capital (WACC) for GlucoCare Limited
based on market values as of 31 May 2025, we need to determine the cost of each
component of capital (ordinary shares, preference shares, and debt) and their
respective weights in the total capital structure. The WACC formula is:
𝑬 𝑷 𝑫
WACC = 𝑽 ∗ 𝑲𝒆 + 𝑽 ∗ 𝑲𝒑 + 𝑽 ∗ 𝑹𝒅 ∗ (𝟏 − 𝒕)
Where:
3|Page BMZ ACADEMY 061 262 1185/068 053 8213
THE BMZ ACADEMY
@061 262 053 8213
BMZ ACADEMY 061 262 1185/068 053 8213Page 1 of 26
, THE BMZ ACADEMY
QUESTION 1
Table Format
Year Cash Flow (R) Discount Factor @16% Present Value (R)
0 -805 000 000 1.0000 -805 000 000
1 415 809 000 0.8621 358 467 738.90
2 424 308 870 0.7432 315 346 351.78
3 436 323 986.10 0.6407 279 552 177.79
4 451 144 743.183 0.5523 249 167 201.16
5 617 744 013.725 0.4761 294 107 624.93
NPV 691 641 094.56
Rounded to nearest rand: NPV = R691,641,095
Advice: Since the NPV is positive, GlucoCare Limited should purchase the new
machinery.
Question b) Quantitative Factors
Beyond the net present value (NPV) calculation, the board should conduct a sensitivity
analysis to assess how changes in key variables such as sales volume, production
costs, or inflation rates might impact project returns. It is also important to evaluate the
payback period to understand the project’s liquidity risk and ensure the internal rate of
return (IRR) exceeds the company’s cost of capital. Additionally, the board must
consider potential financing costs and tax implications, including the sustainability of
capital allowances and possible shifts in corporate tax policy.
2|Page BMZ ACADEMY 061 262 1185/068 053 8213
, THE BMZ ACADEMY
Qualitative Factors
The rapid pace of technological change in healthcare presents a risk that the new
machinery could become obsolete before the end of its useful life. Regulatory
compliance is another critical factor; delays or refusals from agencies like SAHPRA
could disrupt production and sales. The company’s reputation is also at stake product
failures or recalls could damage trust among patients and healthcare providers, while
success could enhance GlucoCare’s brand and credibility. Finally, the availability of
skilled operators for the automated equipment may require additional training
investments.
Strategic Factors
The investment strongly aligns with GlucoCare’s mission to improve affordability and
accessibility of diabetes management, potentially solidifying its market leadership. The
project may also create a competitive advantage through lower production costs,
enabling more aggressive pricing. The positive relationship with the National
Department of Health could lead to further opportunities for collaboration or funding.
Scalability is another important consideration; if demand grows, the machinery could
help the company expand into other African markets. Moreover, this investment might
raise entry barriers for competitors and create options for diversifying into other
medical devices in the future.
Question c) Calculate the weighted average cost of capital (WACC) of GlucoCare
Limited based on market values at 31 May 2025 before the acquisition of the new
automated assembly machinery. [Round rand amounts to the nearest cent and
other numbers to two decimal places]
To calculate the Weighted Average Cost of Capital (WACC) for GlucoCare Limited
based on market values as of 31 May 2025, we need to determine the cost of each
component of capital (ordinary shares, preference shares, and debt) and their
respective weights in the total capital structure. The WACC formula is:
𝑬 𝑷 𝑫
WACC = 𝑽 ∗ 𝑲𝒆 + 𝑽 ∗ 𝑲𝒑 + 𝑽 ∗ 𝑹𝒅 ∗ (𝟏 − 𝒕)
Where:
3|Page BMZ ACADEMY 061 262 1185/068 053 8213
