(a) (b) James Chege intends to accumulate Sh.10,000,000 in his bank account 15 years from now....

 

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(a) (b) James Chege intends to accumulate Sh.10,000,000 in his bank account 15 years from now. Required: The amount he should deposit now assuming that the bank is offering a 5% interest rate per annum compounded semi-annually. (4 marks) The following information relates to Triplex Ltd: 1. The company has annual sales revenue of Sh.6,000,000 and all sales are on 30 days credit, although customers on average take 10 days more than the recommended 30 days to pay. Contribution represents 60% of sales and the company currently has no bad debts. Accounts receivable are financed by an overdraft at an annual interest rate of 7%. Triplex Ltd. plans to offer an early settlements discount of 1.5% for payment within 15 days and to extend the maximum credit offered to 60 days. 2. 3. 4. 5. The company expects that these changes will increase annual credit sales by 5% while also leading to additional incremental costs equal to 0.5% of sales revenue. The discount is expected to be taken by 30% of customers, while the remaining customers would take an average of 60 days to pay. Required: Evaluate whether the proposed changes in credit policy will increase the profitability of Triplex Ltd. (8 marks) (c) Tuli Ltd. intends to invest in one of two machines; A or B. The following data is available: Year 0 1 2 3 4 5 Machine A Cash inflows "Sh.000" (30,000) 8,400 9,600 14,000 16,000 4,000 Additional information: 1. 2. 3. Machine B Cash inflows "Sh.000" (30,000) 8,400 9,000 8,000 10,000 20,000 Both machines have a useful life of 5 years. Depreciation is on a straight line basis. The corporate tax rate is 30%. Required: Using pay back period as the criterion for project selection, advise the management of Tuli Ltd. on which machine to invest in. (8 marks) (a) (b) James Chege intends to accumulate Sh.10,000,000 in his bank account 15 years from now. Required: The amount he should deposit now assuming that the bank is offering a 5% interest rate per annum compounded semi-annually. (4 marks) The following information relates to Triplex Ltd: 1. The company has annual sales revenue of Sh.6,000,000 and all sales are on 30 days credit, although customers on average take 10 days more than the recommended 30 days to pay. Contribution represents 60% of sales and the company currently has no bad debts. Accounts receivable are financed by an overdraft at an annual interest rate of 7%. Triplex Ltd. plans to offer an early settlements discount of 1.5% for payment within 15 days and to extend the maximum credit offered to 60 days. 2. 3. 4. 5. The company expects that these changes will increase annual credit sales by 5% while also leading to additional incremental costs equal to 0.5% of sales revenue. The discount is expected to be taken by 30% of customers, while the remaining customers would take an average of 60 days to pay. Required: Evaluate whether the proposed changes in credit policy will increase the profitability of Triplex Ltd. (8 marks) (c) Tuli Ltd. intends to invest in one of two machines; A or B. The following data is available: Year 0 1 2 3 4 5 Machine A Cash inflows "Sh.000" (30,000) 8,400 9,600 14,000 16,000 4,000 Additional information: 1. 2. 3. Machine B Cash inflows "Sh.000" (30,000) 8,400 9,000 8,000 10,000 20,000 Both machines have a useful life of 5 years. Depreciation is on a straight line basis. The corporate tax rate is 30%. Required: Using pay back period as the criterion for project selection, advise the management of Tuli Ltd. on which machine to invest in. (8 marks)

Answer rating: 100% (QA)

aUsing the compound interest formula A P1 rnnt where A final amount Sh10000000 P initial amount unknown r annual interest rate 5 n number of times int... View the full answer