$(25$ MARKS$)$QUESTION $3$

Study the information provided by the child welfare organisation and answer the following questions

REQUIRED independently. The expanded contribution margin model must be used to answer questions $3\mathrm{.}1,3\mathrm{.}2$ and

$3\mathrm{.}4.$

$(5$ marks$)$

$3\mathrm{.}1$ Calculate the break$-$even quantity.

$3\mathrm{.}2$ Calculate the sales volume required to achieve an operating profit of R$2112000.$

$(5$ marks$)$

$3\mathrm{.}3$ Calculate the selling price per unit $($expressed to the nearest cent$)$ that will enable to welfare organisation to achieve an operating profit of R$50$ per unit.

$(5$ marks$)$

$3\mathrm{.}4$ Suppose the selling price is decreased by R$20$ per unit with the expectation that this would increase the sales volume by $20\%.$ Is this a good idea? Motivate your answer with the relevant calculations.

$(5$ marks$)$

$3\mathrm{.}5$ Calculate the margin of safety $($in units$)$ if the selling price drops to R$110$ per unit with the expectation that the fixed costs can be reduced to R$711900.$

$(5$ marks$)$

QUESTION $4$

$(25$ MARKS$)$

Use the information related to the acquisition of a new machine to calculate the following. $($lgnore taxes.$)$ Use discount factors from the four decimals present value tables only in the relevant calculations.

$4\mathrm{.}1$ Payback Period $($expressed in yoars and months$).$

$(3$ marks$)$

$4\mathrm{.}2$ Accounting Rate of Retum on initial investment $($expressed to two decimal places$).$

$(4$ marks$)$

$4\mathrm{.}3$ Net present value. Your answer must include the present value calculations and the calculation of the NPV$.$

$(6$ marks$)$

$4\mathrm{.}4$ Internal Rate of Retum $($expressed to two decimal places$).$ Your answer must reflect two NPV calculations $($using consecutive rates$/$percentages$)$ and interpolation.

$(6$ marks$)$

$4\mathrm{.}5$ Weighted average cost of capital $($expressed to two decimal places$)$ if the initial investment is funded by ordinary shares and debt in the ratio $3$:$2$ respectively and the cost of ordinary shares and cost of debt are $18\%$ and $14\%$ respectively. Your answer must include the values of the ordinary shares and debt.

$(6$ marks$)$

FORMULA SHEET

$\backslash$table$[[$Operating proft,$x,100],[$Sales$,,1]]$

$\backslash$table$[[$Proft ater tax,$x,100],[$Sales$,,1]]$

$\backslash$table$[[$Cost of sales$],[$Average inventory$]]$

$\backslash$table$[[$Accounts recelvable,$x,365],[$Credit ssles,,$1]]$

$\backslash$table$[[$Accounls payable,$x,365],[$Credit purchases,,$1]]$

$\backslash$table$[[$Sales$],[$Net assets$]]$

$\backslash$table$[[$Operating profit,$x,100],[$Total assels,,$1]]$

$\backslash$table$[[$Operating profit,$x,100],[$Capital employed,,$1]]$

$\backslash$table$[[$Profit after tax,X$,100],[$Equity$,,1]]$

$\backslash$table$[[$Prots ater tax,$x,100],[$No$.$ of ondrary shares lssued,,$1]]$

$\backslash$table$[[$Dividends for the year,$x,100],[$No$.$ of ondirary shares issued,,$1]]$

$\backslash$table$[[$Retained earrings for the year,$x,100],[$Profit due to ordinary shareholders,,$1]]$

$\backslash$table$[[$Earnings per share $-$ Dividend per share,X$,100],[$Earnings per share,,$1]]$

$\backslash$table$[[$Market price per share$],[$Eamings per share$]]$

$\backslash$table$[[$Current assets$],[$Current liablities$]]$

$\backslash$table$[[$Current assets $-$ Imventory$],[$Curnent liabilites$]]$

$\backslash$table$[[$Total debt,$x,100],[$Total assets,,$1]]$

$\backslash$table$[[$Non$-$current debt,X$,100],[$Equity$,,1]]$

$\backslash$table$[[$Operating profit$],[$Interest expense$]]$