QUESTION 4 (20 Marks)

REQUIRED

Study the information provided below and answer the following questions independently:

4.1 Calculate the break-even quantity. (5 marks)

4.2 Calculate the break-even value. (3 marks)

4.3 Calculate the total Marginal Income and Net Profit/Loss if all 16 000 units are sold. (4 marks)

4.4 Suppose Harpic Limited wants to make provision for a 10% decrease in variable costs. Calculate the new break-even quantity. (4 marks)

4.5 Suppose Harpic Limited wants to make provision for a 12% increase in fixed costs and wants to increase the selling price by R4 per unit. Will this be more profitable? Motivate

your answer with the relevant calculations. (4 marks)

INFORMATION

The following information regarding a product manufactured from Project Beta of Harpic Limited is available:

Selling price per unit R200

Direct labour cost per unitR40

Direct materials cost per unit R60

Factory overheads (all fixed) R600 000

Administrative costs (all fixed) R360 000

Selling costs per unitR20

Expected sales (units)16000

QUESTION 5 (20 Marks)

Note: Where applicable, refer to the present value tables (APPENDIX 1 and 2) that appear after QUESTION 5.

REQUIRED

Use the information given below to calculate the following:

5.1 Payback Period (answer expressed in years, months and days). (3 marks)

5.2 Accounting Rate of Return on average investment (answer expressed to two decimal

places). (4 marks)

5.3 Net Present Value (amounts rounded off to the nearest Rand). (4 marks)

5.4 Benefit Cost Ratio (answer expressed to three decimal places). (3 marks)

5.5 Internal Rate of Return, if the net cash inflows amount to R160 000 per year for 5 years (answer expressed to two decimal places). (6 marks)

INFORMATION

An investment in a project is expected to have the following net cash inflows:

YearNet cash inflows

1R120 000

2R150 000

3R180 000

4R220 000

5R160000

The project requires an investment of R600 000. The cost of capital is 15%. The investment is not expected to have any salvage value. The average annual profit is estimated at R46000.