Question 1
Mr X would like to open a business he is not sure of the type of business but he wants to be able to do general dealing in a variety of areas he is familiar with, such as merchandising, wholesaling and franchising or a food outlet; he does not have enough capital and he is not a specialist in any of the areas mentioned above, he would like to have independence in management though he knows this might not be possible if he get a partner or a bank loan.
Advise Mr X on which business to open.
Question 2
Company Y opens a business. It invests R100 000 and receives the following:
Cash flows
|
Year
|
Amount (R)
|
|
1
|
28 000
|
|
2
|
25 000
|
|
3
|
30 000
|
|
4
|
25 000
|
|
5
|
24 000
|
Requirements:
2.1 Calculate the payback period.
2.2 Calculate the discounted payback period.
2.3 Calculate the net present value.
2.4 Calculate the IRR.
2.5 Comment on your answer.
Question 3
You are the financial manager of a mining company; you are looking at an investment that requires 10 years to start paying back. This is in a third world country, what factors would you consider and why?
Question 4
Financial statement analysis assists the financial manager in understanding the financial performance of the company. What other factors will a financial manager need to consider to getting a full picture of the performance or future
prospects of the company?
Question 5
XYZ Ltd.
Statement of Comprehensive Income for Year ended December 2012
|
|
2012
|
|
R'000
|
|
Sales revenue
|
5 743
|
|
Cost of sales
|
(4236)
|
|
Gross profit
|
1 507
|
|
Administrator expenses
|
(471)
|
|
Markets expense
|
(451)
|
|
Other expenses
|
(272)
|
|
Profit before interest and tax
|
313
|
|
Interest
|
(104)
|
|
Profit before tax
|
209
|
Income tax expenses (59)
Profit from continuing operation 150
XYZ Ltd
Statement of financial position as it at December 2012
Equity and liabilities
|
Capital
|
400
|
|
Profit/loss
|
315
|
|
Equity attributable to owners
|
715
|
|
Non-current liabilities
|
|
|
Long-term loan
|
372
|
|
Current liabilities
|
|
|
Creditors
|
80
|
|
Short-term loan
|
50
|
|
Total liabilities
|
502
|
|
Total equity and liability
Assets
|
1 217
|
|
Non-current assets
|
|
|
Plant and equipment
|
925
|
|
Current assets
|
|
|
Stock
|
150
|
|
Debtors
|
100
|
|
Bank
|
42
|
|
Total current assets
|
292
|
|
|
1 217
|
Calculate the following ratios and comment on each ratio in your answers in relation to industry averages:
Each ratio is worth 3 marks. 1 mark is awarded for the calculation and 2 marks awarded for the interpretation and discussion there of.
|
5.1
|
Current ratio
|
(3)
|
|
5.2
|
Quick ratio
|
(3)
|
|
5.3
|
Inventory turnover
|
(3)
|
|
5.4
|
Average collection period
|
(3)
|
|
5.5
|
Asset turnover
|
(3)
|
|
5.6
|
Debt ratio
|
(3)
|
|
5.7
|
Debt to agent
|
(3)
|
|
5.8
|
Times interest earned
|
(3)
|
|
5.9
|
Gross profit margins
|
(3)
|
|
5.10
|
Return on equity
|
(3)
|
Industry averages
Current ratio 3.00
Quick ratio 2.00
Inventory turnover 20 times
Average collection period 30 days
Fixed asset turnover 10 times
Debt ratio 20 %
Debt to equity 50%
Times interest earned 1
time Gross profit margins 50%
Return on Equity 10%