CASE STUDY

PROGRAMME Bachelor of Business Administration

Bachelor of Commerce in Supply Chain Management

Bachelor of Commerce in Retail Management

Bachelor of Commerce in International Business

MODULE Financial Planning and Control

YEAR 3 (Three)

INTAKE January 2024 Semester 1

Marks 30
QUESTION 1

Prepare the following pro forma statements:

1.1 Statement of Comprehensive Income for the year ended 31 December 2024 using the
percentage-of-sales method.

1.2 Statement of Financial Position as of 31 December 2024.

Answers

1.1

Elsies Limited

Statement of Comprehensive Income

For the year Ended 31 December 2024

Items Amounts in R.
Sales in Total (9,600,000 + 25% increase ) 12,000,000
Less: COGS (75% of sales) = 12,000,000 * 75%= 9,000,000 -9,000,000
Gross Profit 3,000,000
OP. Expenses. ( 1,200,000 + Dep. 300,000) 1,500,000
Profit before Tax 1,500,000
Taxes (27% = 0.27)= 0.27 * 1,500,000 405,000
10% tax unpaid (0.10 * 405,000) -40,500
Profit after Taxes 1,135,500

Less: Dividend -400,000

Elsies Limited

Statement of Financial Position

As of 31 December 2024

Items Amounts in R.
ASSETS
Fixed Assets 4,200,000
Cash 600,000
Inventories 600,000
Receivables 1,120,548
TOTAL ASSETS 6,520,548
LIABILITIES
Long term loan (2,400 – 360) 2,040,000
Creditors 1,100,800
Tax Payables 33,000
TOTAL LIABILITIES 3,173,800
EQUITY
Share capital 1,800,000
Undistributed Profit 2,835,500
Profit for the year 735,500
TOTAL EQUITY 5,371,000
TOTAL LIABILITIES AND EQUITY 6,744,800

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QUESTION 2
Refer to the investment opportunity for 2025 and calculate the following. (Ignore taxes.)
Where discount factors are required, use the four decimals present value tables that appear
in the module guide.

2.1 Accounting Rate of Return on average investment (expressed to two decimal places).

2.2 Benefit Cost Ratio (expressed to two decimal places).

2.3 Internal Rate of Return (expressed to two decimal places). Your answer must reflect two
NPV calculations (using consecutive rates/percentages) and interpolation.

Answers

2.1

As we are given the cost of machine = R 2,000,000

Installation cost of Machine = R 400,000

Salvage value = R 100,000

The average investment made over the project's lifetime must be ascertained before we can
compute the Accounting Rate of Return (ARR). After that, we'll figure out the average yearly
profit.

Avg. Investment = (Initial Investment + Installation cost – Salvage value)/2

= (2,000,000 + 400,000 – 100,000)/2

= 2,300,000/2

= 1,150,000

Now, we will do average annual profit

Avg. Annual Profit = (Total cash Inflows - Total cost (except dep.))/no. of years

= (800,000 – (100,000 x 2 + 40,000 x 5)/5

= 80,000

Now, its time to do ARR.

ARR = (Avg. Annual Profit/Avg. Investment)* 100%

= (80,000/1,150,000) * 100%

ARR= 6.96%

2.2

BCR = Total PV of Cash Inflows/Total PV of cash outflows

BCR = 714,285.71+637,755.10+568,947.85+507,461.06+452,508.15/400,000 +
2,000,000

BCR = 2,880,957.87/ 2,400,000

BCR = 1.20

2.3

Let's compute the Internal Rate of Return (IRR) after this. We'll loop through discount rates
using the NPV calculation until we discover the one that produces an NPV that is closest to zero.
Interpolation will be used after we begin using consecutive rates.

Using consecutive rates:

At 10%: NPV = R 2,880,957.87 – R 2,400,000 = R 480,957.87 (positive)

At 15%: NPV = R 2,880,957.87 – R 2,400,000 = R 480,957.87 (positive)

IRR = 10% + 0/(480,957.87−480,957.87) x 5%

IRR = 10%

Thus, the IRR, or internal rate of return, is about 10%.