MAC3702 ASSIGNMENT 2 SEMESTER 2 2025 *COMPLETE ANSWERS* DUE DATE 12 SEPTEMBER 2025

,MAC3702 ASSIGNMENT 2 SEMESTER 2 2025 SOLUTIONS

DUE DATE: 12 SEPTEMBER 2025



QUESTION 1 (72 Marks)

(a) Net Present Value (NPV) of the Project

Given Data:

• Machinery cost: R690,000,000

• Useful life: 5 years

• Scrap value: R57,500,000

• Depreciation: R138,000,000 per year

• Contribution margin: 35%

• Selling price (year 1): R180 per device

• Fixed costs: R34,500,000 per month = R414,000,000 per year

• Working capital: R115,000,000 (80% recovered at end)

• Tax: 27%

• Capital allowance: 25%

• Required rate of return: 16%

Step 1: Calculate Annual Revenue and Contribution

Description Value (R)

Units sold per year (Assume demand units = 1,200,000)

Selling price per unit 180

Total revenue 216,000,000

Contribution (35%) 75,600,000

Less: Fixed costs 414,000,000

EBIT -338,400,000

, Description Value (R)

Less: Depreciation 138,000,000

Taxable profit (Taxable profit negative)

Tax (27%) 0

Add back depreciation 138,000,000

Net cash flow 138,000,000

(Note: For exact NPV, revenue must be based on actual expected units per annum from
scenario – please provide if available, otherwise assumption used.)

Step 2: Cash Flow Table and NPV Calculation

Present Value Present Value
Year Net Cash Flow (R)
Factor @16% (R)

0 -690,000,000 - 115,000,000 = -805,000,000 1 -805,000,000

1 138,000,000 0.8621 118,890,000

2 138,000,000 0.743 102,534,000

3 138,000,000 0.641 88,458,000

4 138,000,000 0.552 76,176,000

138,000,000 + Scrap 57,500,000 + WC
5 0.476 136,850,000
recovered 92,000,000 = 287,500,000

NPV -282,092,000




Advice: Based on the above NPV (negative), the project would not be financially viable
at a 16% required rate of return, unless revenue or contribution margin increases
significantly.



(b) Other Factors the Board Should Consider