QUESTION $4$

$4\mathrm{.}1.$ Study the information provided below and answer the following question.

The information presented below relates to the six$-$year life$-$cycle budget for Roodepoort Manufacturing $\backslash$& Suppliers $($RM$\backslash$&S$)$ for three alternative sales packages for a bundle of school laptops available for sale to wholesalers.

INFORMATION

REQUIRED:

Using a table, calculate the life$-$cycle operating incomes for each of the three $(3)$ sales packages.

$4\mathrm{.}2.$ Review the details provided below and answer the following questions.

Radasys Resources Enterprises $($RRE$)$ is a successful and profitable small enterprise with credit sales of R$6$m per year. Sales are spread evenly over the year and there are no irrecoverable debts.

RRE is falling behind with its credit control activities as although standard credit terms are $30$ days, receivable days are currently $80$ days. Receivables are financed by a bank overdraft at a cost of $\backslash (5\backslash \%\backslash ).$

To improve credit control, RRE is considering either employing the services of a factor company or employing a full$-$time credit controller.

The terms and conditions of the two options are specified as follows:

Option $1$: Employ the services of a factor company

The factor company would:

$-$ reduce the receivable days to $30$ days.

$-$ advance to RRE $\backslash (75\backslash \%\backslash )$ of receivables at an interest rate of $\backslash (8\backslash \%\backslash )$ per annum.

$-$ charge an administration fee equal to $\backslash (2\backslash \%\backslash )$ of all credit sales.

Option $2$: Employ a full$-$time credit controller

The credit controller would:

$-$ be paid a salary of R$36000$ per year

$-$ reduce the receivable days to $35$ days.

REQUIRED

$4\mathrm{.}2\mathrm{.}1.$ Calculate the current cost of financing trade receivables $($round off answer the nearest Rand$).$

$(2$ Marks$)$

$4\mathrm{.}2\mathrm{.}2.$ Calculate the net cost or benefit of EACH of the two options and state which $($if either$)$ RRE should

$(8$ Marks$)$ choose. Assume there are $365$ days in a year.