Appliances Ltd is the largest manufacturer and distributor of household appliances in South Africa, with its...

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Appliances Ltd is the largest manufacturer and distributor of household appliances in South Africa, with its office located in Sandton, where all its treasury functions are executed. Its product line includes refrigerators, freezers, ovens, microwaves, toaster ovens and toasters, distributed to more than 159 outlets and employing over 5 000 employees. The company is a dominant force in every community it serves, offering clear value to customers on price and quality. Appliances Ltd aims to be the appliance products and service leader in its market. To this case study, part of Appliances treasury policy (investment policy) and cash flow forecast information were retrieved from their records. TREASURY POLICY In terms of the companies act, Act 2003, companies are compelled to have a treasury policy in place that will streamline and harmonise debt, investment, cash and risk management, which will result in a most cost-effective funding rate, acceptable retur on invested surplus cash and level of risk that is in line with the company's risk appetite. The company's board of directors drafted the following investment management sub-policy: INVESTMENT MANAGEMENT POLICY All investments made by an investment manager on behalf of the company must be in accordance with the provisions of the investment policy and regulations. The resolution of investment policy requires that surplus cash be deposited to the authorised counterparty, with relevant bank deposit type, approved money market instruments and that the investment manager must ensure that the financial institutions used are financially sound. According to the treasury policy, Appliances Ltd is authorised to invest the surplus cash on treasury bills, commercial paper and banker's acceptance only. ACTUAL AND FORCASTED SALES Mr Arthur Brown, a financial analyst for Appliances Ltd has supplied the actual and forecasted sales in the following table: Months Sale (R) ACTUAL SALES June 2023 212 000 May 2023 180 000 July 2023 186 000 FORECASTED SALES September October 2023 2023 188 000 August 2023 290 000 199 000 The company receives 70% of all sales in the month of the transaction, 20% one month later and the last 10% only two months after the initial transaction. Purchases are expected to be 50% of the projected sales value. 30% of the inventory is paid for in the month of order, while the remaining 70% is paid one month later. The firm wishes to maintain a minimum ending balance in its cash account of R75 000; a balance above this amount would be invested in short-term securities, while any deficit would be financed through short-term borrowing. The beginning cash balance in August is R40 000. The following cash payments and receipts should also be considered: • The company receives rental income of R24 000 per month. This amount is due to increase by 25% in September. • In August, the company made a payment of R12 000 for a charity event. • The monthly water and electricity bill is estimated to be 6% of total forecasted monthly purchases. Telephone varies each month: the telephone costs were R1 230 in August, R1 440 in September and R1 530 in October. • Salaries are paid as commission, which is calculated as 6% of sales every month. Additional information: • The cash surplus of August will be invested to the treasury bills (TB) with a nominal value of R100 000, issued for a period of 91 days at a discount rate of 10.20%. • Surplus cash of September will be invested on a Banker Acceptance (BA) with nominal value of R200 000 that has 80 days to maturity and the discount rate is 17.25% per annum. • Treasury will buy a commercial paper for R280 000 with a face value of R300 000, a maturity of 91 days with a brokerage fee and other charges of 2% with the surplus cash of October. REQUIRED 2.1 Prepare a cash budget of Appliances Ltd for the months of August, September and October. (15) 2.2 List the institutions that initially issued the money market securities that Appliances Ltd invests their surplus cash on, discuss the characteristics of these securities and outline the purpose for which they were initially issued for. (Marks will be allocated as follows: 9 marks for discussing theory, 6 marks for practical application.) (15) 2.3 Calculate the consideration values of the treasury bill and Banker Acceptance (4) that the company will invest in. 2.4 Determine a yield to maturity (YTM) of the treasury bill, Banker Acceptance and commercial paper that the company will buy and keep until maturity. (6) Appliances Ltd is the largest manufacturer and distributor of household appliances in South Africa, with its office located in Sandton, where all its treasury functions are executed. Its product line includes refrigerators, freezers, ovens, microwaves, toaster ovens and toasters, distributed to more than 159 outlets and employing over 5 000 employees. The company is a dominant force in every community it serves, offering clear value to customers on price and quality. Appliances Ltd aims to be the appliance products and service leader in its market. To this case study, part of Appliances treasury policy (investment policy) and cash flow forecast information were retrieved from their records. TREASURY POLICY In terms of the companies act, Act 2003, companies are compelled to have a treasury policy in place that will streamline and harmonise debt, investment, cash and risk management, which will result in a most cost-effective funding rate, acceptable retur on invested surplus cash and level of risk that is in line with the company's risk appetite. The company's board of directors drafted the following investment management sub-policy: INVESTMENT MANAGEMENT POLICY All investments made by an investment manager on behalf of the company must be in accordance with the provisions of the investment policy and regulations. The resolution of investment policy requires that surplus cash be deposited to the authorised counterparty, with relevant bank deposit type, approved money market instruments and that the investment manager must ensure that the financial institutions used are financially sound. According to the treasury policy, Appliances Ltd is authorised to invest the surplus cash on treasury bills, commercial paper and banker's acceptance only. ACTUAL AND FORCASTED SALES Mr Arthur Brown, a financial analyst for Appliances Ltd has supplied the actual and forecasted sales in the following table: Months Sale (R) ACTUAL SALES June 2023 212 000 May 2023 180 000 July 2023 186 000 FORECASTED SALES September October 2023 2023 188 000 August 2023 290 000 199 000 The company receives 70% of all sales in the month of the transaction, 20% one month later and the last 10% only two months after the initial transaction. Purchases are expected to be 50% of the projected sales value. 30% of the inventory is paid for in the month of order, while the remaining 70% is paid one month later. The firm wishes to maintain a minimum ending balance in its cash account of R75 000; a balance above this amount would be invested in short-term securities, while any deficit would be financed through short-term borrowing. The beginning cash balance in August is R40 000. The following cash payments and receipts should also be considered: • The company receives rental income of R24 000 per month. This amount is due to increase by 25% in September. • In August, the company made a payment of R12 000 for a charity event. • The monthly water and electricity bill is estimated to be 6% of total forecasted monthly purchases. Telephone varies each month: the telephone costs were R1 230 in August, R1 440 in September and R1 530 in October. • Salaries are paid as commission, which is calculated as 6% of sales every month. Additional information: • The cash surplus of August will be invested to the treasury bills (TB) with a nominal value of R100 000, issued for a period of 91 days at a discount rate of 10.20%. • Surplus cash of September will be invested on a Banker Acceptance (BA) with nominal value of R200 000 that has 80 days to maturity and the discount rate is 17.25% per annum. • Treasury will buy a commercial paper for R280 000 with a face value of R300 000, a maturity of 91 days with a brokerage fee and other charges of 2% with the surplus cash of October. REQUIRED 2.1 Prepare a cash budget of Appliances Ltd for the months of August, September and October. (15) 2.2 List the institutions that initially issued the money market securities that Appliances Ltd invests their surplus cash on, discuss the characteristics of these securities and outline the purpose for which they were initially issued for. (Marks will be allocated as follows: 9 marks for discussing theory, 6 marks for practical application.) (15) 2.3 Calculate the consideration values of the treasury bill and Banker Acceptance (4) that the company will invest in. 2.4 Determine a yield to maturity (YTM) of the treasury bill, Banker Acceptance and commercial paper that the company will buy and keep until maturity. (6)

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Based on the information provided in the images lets begin by addressing question 23 which asks us to calculate the consideration values of the treasu... View the full answer