PROJECT PROGRAMME

Postgraduate Diploma in Project Management

MODULE

ProQuestion One and Two are based on the information provided below for Mia Limited:

INFORMATION:

In December $2023,$ Mia Limited was planning its financial needs for the coming year. As a first indication, the firm$$s management required a pro forma Statement of Financial Position as at $31$ December $2024$ to gauge the financial needs at that time. The financial condition as at $31$ December $2023$ was reflected in this Statement of Financial Position:

Statement of Financial Position as at $31$ December $2023$

R

ASSETS

Non$-$current assets

$451800$

Property, plant and equipment

Accumulated depreciation

Other non$-$current assets

$843000$

$(434600)$

$43400$

Current assets

$2982400$

Inventories

$1825400$

Accounts receivable

$722400$

Cash and cash equivalents

$434600$

Total assets

$3434200$

EQUITY AND LIABILITIES

Equity

$992800$

Ordinary share capital

Retained income

$624000$

$368800$

Non$-$current liabilities

$240000$

Mortgage bond

$240000$

Current liabilities

$2201400$

Accounts payable

Other current liabilities

$612300$

$1589100$

Total equity and liabilities

$3434200$

ADDITIONAL INFORMATION:

QUESTION ONE $(25$ Marks$)$

REQUIRED

$1\mathrm{.}1$ Use the information provided to Prepare the pro forma Statement of Financial Position as at $31$ December $2024.(20)$

$1\mathrm{.}2$ Discuss the purpose of projected financial statements in business planning and decision$-$making, highlighting their significance for managerial decision$-$making, investor relations, and strategic planning. $(5)$

Operations for the following year were projected using the following working assumptions to plan the financial results:

$$

Sales were forecast at R$20900000.$

$$

Capital expenditures were scheduled at R$42000$ for a delivery van and R$72000$ for warehouse improvements.

$$

Depreciation is expected to be R$62800$ for the year.

$$

Inventories, Accounts receivable and Accounts payable are estimated to be $10\%,4\%$ and $6\%$ of sales respectively.

$$

Cash balances are desired to be no less than R$300000.$

$$

Net profit after tax is expected at a level of $0\mathrm{.}19\%$ of sales.

$$

Dividends for the year were estimated at R$25000.$

$$

A mortgage loan repayment of R$20000$ is expected to be made.

$$

Other current liabilities will be allowed to fluctuate with seasonal needs.

QUESTION TWO $(18$ Marks$)$

Using the information provided above, answer the following questions:

$2\mathrm{.}1$ Calculate the following ratios for the year ending $2023$:

$2\mathrm{.}1\mathrm{.}1$ Current Ratio $(4)$

$2\mathrm{.}1\mathrm{.}2$ Debt to equity ratio $(3)$

$2\mathrm{.}1\mathrm{.}3$ Inventory turnover ratio $(4)$

$2\mathrm{.}1\mathrm{.}4$ Return on equity $(3)$

$2\mathrm{.}1\mathrm{.}5$ Acid test ratio $(3)$

$2\mathrm{.}1\mathrm{.}6$ Capital gearing ratio $(3)$

$2\mathrm{.}2$ Explain how the company's decision to maintain a cash balance of at least R$300,000$ affects its liquidity position. $(5)$

QUESTION THREE $(25$ Marks$)$

$3\mathrm{.}1$ You are considering an investment opportunity that promises to pay you R$10,000$ in exactly $3$ years. If the annual interest rate is $5\%,$ what is the present value of this investment? $(4)$

$3\mathrm{.}2$ You deposit R$5,000$ into a savings account that pays an annual interest rate of $8\%.$ How much will you have in the account after $5$ years? $(3)$

$3\mathrm{.}3$ You are offered an investment that will double your money in $10$ years. What is the implied interest rate of this investment? $(6)$

$3\mathrm{.}4$ You invest R$20,000$ in a bond that promises to triple your money. If the bond pays an annual interest rate of $10\%,$ how long will it take for your investment to triple? $(6)$

$3\mathrm{.}5$ Explain in detail why understanding the concept of time value of money is essential for financial decision$-$making. $(6)$

QUESTION FOUR $(25$ Marks$)$

Springboks Limited is looking to expand its operations and increase its market share in the cell phone industry. To achieve this, they are looking to increase its current productive capacity of $1000000$ cell phones a year by at least $6\%$ for each of the next $5$ years. It is considering two cell phone making machines and is unsure which to purchase:

Cell Phone Machine ABC:

Cell Phone Machine ABC can be imported at a landed purchase cost of R$1600000$ and a further R$400000$ transport and installation costs will have to be incurred to get it ready for production. This machine is expected to last $5$ years after which time it cannot be sold. Net cash flow from the sale of the additional production is expected to be R$440000,$ R$560000,$ R$800000,$ R$820000$ and R$400000$ respectively over the $5-$year lifespan of the machine. This machine will enable Springboks Limited to achieve a $4\%$ increase in productive capacity.

Cell Phone Machine XYZ:

Cell Phone Machine XYZ can be purchased locally for R$2000000$ and will also have a useful life of $5$ years. It will not have any resale value at the end of the $5$ years and will be disposed of$.$ Net cash inflows from additional production will amount to R$600000$ per annum for each of the five years. This machine will enable Springboks Limited to achieve a $2\%$ increase in productive capacity.

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