DREAMIT ELECTRONICS LTD: PROJECTIONS FOR

$2$

$0$

$2$

$4$

$$AND

$2$

$0$

$2$

$5$

$$

After posting excellent sales and net profit in the previous year Dreamit Electronics Ltd set its sights on growth and innovation

as it celebrated its

$1$

$0$

th anniversary in

$2$

$0$

$2$

$3$

$.$

$$It has continually strived to become the leader in the electronics industry in South

Africa. The company is also committed to being a good corporate citizen, as it strives to fulfil both its economic and social

responsibilities.

$$

The following reflects the financial position of the company on

$3$

$1$

$$December

$2$

$0$

$2$

$3$

:

The carrying value of the fixed assets was R

$3$

$0$

$0$

$0$

$0$

$0$

$0$

$0$

$$whilst the current assets comprised inventory of R

$9$

$4$

$0$

$0$

$0$

$0$

$0$

$,$

$$accounts

receivable of R

$8$

$0$

$0$

$0$

$0$

$0$

$0$

$$and cash of R

$1$

$6$

$0$

$0$

$0$

$0$

$0$

$.$

$$The equity consisted of ordinary share capital, R

$1$

$7$

$0$

$0$

$0$

$0$

$0$

$0$

$,$

$$and retained

earnings of R

$6$

$4$

$0$

$0$

$0$

$0$

$0$

$.$

$$An amount of R

$2$

$2$

$0$

$0$

$0$

$0$

$0$

$0$

$$was owed to Mesa Bank for a long

$-$

term loan. Trade creditors were owed

R

$3$

$6$

$0$

$0$

$0$

$0$

$0$

$.$

$$

$$

The following projections and proposals were made by Dreamit Electronics Ltd for

$2$

$0$

$2$

$4$

:

The sales are expected to increase from R

$3$

$0$

$0$

$0$

$0$

$0$

$0$

$0$

$$in

$2$

$0$

$2$

$3$

$$to R

$4$

$0$

$0$

$0$

$0$

$0$

$0$

$0$

$$in

$2$

$0$

$2$

$4$

$.$

$$All the sales are on credit. Accounts

receivable is based on a collection period of

$3$

$6$

$.$

$5$

$$days$.$ Accounts payable must be calculated using the percentage

$-$

of

$-$

sales

method. The gross margin and net profit margin ratios are expected to be

$2$

$5$

$\%$

$$and

$1$

$0$

$\%$

$$respectively for

$2$

$0$

$2$

$4$

$.$

$$All purchases

of inventory are on credit. Purchases for

$2$

$0$

$2$

$4$

$$are projected at R

$2$

$5$

$0$

$0$

$0$

$0$

$0$

$0$

$.$

$$The company expects to show a net increase in

cash of R

$5$

$0$

$0$

$0$

$0$

$0$

$$during

$2$

$0$

$2$

$4$

$.$

$$R

$2$

$4$

$0$

$0$

$0$

$0$

$0$

$0$

$$will be spent on additional land and buildings during the fourth quarter of

$2$

$0$

$2$

$4$

$.$

$$

The total depreciation for

$2$

$0$

$2$

$4$

$$is forecasted at R

$4$

$0$

$0$

$0$

$0$

$0$

$0$

$.$

$1$

$0$

$0$

$0$

$0$

$0$

$0$

$$ordinary shares are expected to be sold at R

$4$

$$each

during January

$2$

$0$

$2$

$4$

$.$

$$Dividends of R

$3$

$0$

$0$

$0$

$0$

$0$

$0$

$$are expected to be recommended by the directors at the end of

$2$

$0$

$2$

$4$

$.$

$$These

dividends will be paid during

$2$

$0$

$2$

$5$

$.$

$$R

$5$

$5$

$0$

$0$

$0$

$0$

$0$

$$will be paid to Mesa Bank during

$2$

$0$

$2$

$4$

$.$

$$This amount includes R

$2$

$0$

$0$

$0$

$0$

$0$

$0$

$$for

interest on loan. The amount of external funding

$($

non

$-$

current debt

$)$

$$required must be calculated.

Dreamit Electronics Ltd has identified a new machine that it is considering for purchase at the start of

$2$

$0$

$2$

$5$

$.$

$$The cost the machine

is R

$4$

$0$

$0$

$0$

$0$

$0$

$0$

$.$

$$The machine is expected to have a useful life of five years. No scrap value is anticipated. The annual profits

that are expected to be generated from the machine are as follows:

Year

$1$

$$R

$6$

$0$

$0$

$0$

$0$

$0$

; Year

$2$

$$R

$6$

$2$

$0$

$0$

$0$

$0$

; Year

$3$

$$R

$7$

$0$

$0$

$0$

$0$

$0$

; Year

$4$

$$R

$6$

$6$

$0$

$0$

$0$

$0$

; Year

$5$

$$R

$5$

$6$

$0$

$0$

$0$

$0$

$.$

$$

The cost of capital is

$1$

$5$

$\%$

$.$

$$Depreciation is estimated at R

$8$

$0$

$0$

$0$

$0$

$0$

$$per year.

QUESTIONS

$1$

$.$

$$

Prepare the Pro Forma Statement of Financial Position as at

$3$

$1$

$$December

$2$

$0$

$2$

$4$

$.$

$$

$($

Ignore the investment opportunity for

$2$

$0$

$2$

$5$

$.$

$)$