QUESTION 1 (25 marks) Meeting Corner (Pty.) Ltd. (Meeting Corner) is a restaurant located in Stellenbosch,...

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QUESTION 1 (25 marks) Meeting Corner (Pty.) Ltd. ("Meeting Corner") is a restaurant located in Stellenbosch, Western Cape. The entity's main clientele is employees from close-by businesses and students who purchase a variety of food and beverages from Meeting Corner. Customers can either order take-aways or sit down to enjoy their meal. Meeting Corner's management is considering purchasing a certain specialised coffee machine to employ in the operations. The coffee machine's current purchase price is R15 500 (excluding VAT) and would have an estimated useful life of 3.5 years. Management has estimated that in the first quarter of use, based on the quantity of expected coffee purchases and the selling price and cost to make the coffee, Meeting Corner will generate a total net cash inflow of R3 100 (excluding VAT) from the coffee machine. Thereafter, the movement in the net cash inflow from the new coffee machine exclusively, is expected to be as follow: exclusively, is expected to be as follow: Quarter Second Third Fourth Annually thereafter Movement Increase with 4% Decrease with 2% Stabilise Increase in line with inflation Meeting Corner's management is evaluating whether it will increase shareholder wealth to invest in the coffee machine. The entity's cost of capital is 12% annually. The South African inflation rate is currently 4.3% and is expected to stabilise at 4.5% for the future. Required: Assist Meeting Corner (Pty.) Ltd.'s management in their decision on whether it will increase stakeholder wealth to invest in the coffee machine. Motivate your answer with calculations. Round to two decimals where required. Aligns to SAICA competencies: V-3.3 (25 marks) Identifies and evaluates sources of funds Evaluates financing alternatives considering the consequences, relative costs and benefits, and implications for operational and future financing decisions (including any tax implications) suitable for the entity based on its strategies, including - bank loans and other debt instruments shareholder contributions Develops a portion of a financial proposal or financing plan that is supported by well-reasoned assumptions and up-to-date information Identifies the strengths and weaknesses of the financial proposal or financing plans V-6.1 Evaluates the investment decision Differing project life cycles Analysis of and allowance for risk, including the use of probabilities and consideration of appropriate discount rate Key variables affecting the value of the investment, including the performance of sensitivity analysis and application of equivalent annual annuities, etc. QUESTION 1 (25 marks) Meeting Corner (Pty.) Ltd. ("Meeting Corner") is a restaurant located in Stellenbosch, Western Cape. The entity's main clientele is employees from close-by businesses and students who purchase a variety of food and beverages from Meeting Corner. Customers can either order take-aways or sit down to enjoy their meal. Meeting Corner's management is considering purchasing a certain specialised coffee machine to employ in the operations. The coffee machine's current purchase price is R15 500 (excluding VAT) and would have an estimated useful life of 3.5 years. Management has estimated that in the first quarter of use, based on the quantity of expected coffee purchases and the selling price and cost to make the coffee, Meeting Corner will generate a total net cash inflow of R3 100 (excluding VAT) from the coffee machine. Thereafter, the movement in the net cash inflow from the new coffee machine exclusively, is expected to be as follow: exclusively, is expected to be as follow: Quarter Second Third Fourth Annually thereafter Movement Increase with 4% Decrease with 2% Stabilise Increase in line with inflation Meeting Corner's management is evaluating whether it will increase shareholder wealth to invest in the coffee machine. The entity's cost of capital is 12% annually. The South African inflation rate is currently 4.3% and is expected to stabilise at 4.5% for the future. Required: Assist Meeting Corner (Pty.) Ltd.'s management in their decision on whether it will increase stakeholder wealth to invest in the coffee machine. Motivate your answer with calculations. Round to two decimals where required. Aligns to SAICA competencies: V-3.3 (25 marks) Identifies and evaluates sources of funds Evaluates financing alternatives considering the consequences, relative costs and benefits, and implications for operational and future financing decisions (including any tax implications) suitable for the entity based on its strategies, including - bank loans and other debt instruments shareholder contributions Develops a portion of a financial proposal or financing plan that is supported by well-reasoned assumptions and up-to-date information Identifies the strengths and weaknesses of the financial proposal or financing plans V-6.1 Evaluates the investment decision Differing project life cycles Analysis of and allowance for risk, including the use of probabilities and consideration of appropriate discount rate Key variables affecting the value of the investment, including the performance of sensitivity analysis and application of equivalent annual annuities, etc.

Answer rating: 100% (QA)

Answer Meeting Corner Pty Ltd is considering the purchase of a specialised coffee machine to employ in their operations The machine has a purchase pri... View the full answer