The financial manager of Heidi (Pty) Limited has commenced with the company’s financial planning for 2022. However he is in hospital recovering from the Corona virus and the company needs your assistance with the following which have yet to be completed:
 The pro forma statement of financial position as at 31 December 2021; and
 An appraisal of investment opportunities for implementation during 2022.

QUESTION 1 (15 Marks)
REQUIRED
Use the information provided below to prepare the Pro Forma Statement of Financial Position as at 31 December 2021. The amount of external non-current funding required must be calculated.
INFORMATION
HEIDI (PTY) LIMITED
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020

ASSETS
Non-current assets 2 800 000
Fixed/Tangible assets 2 800 000
Current assets 2 400 000
Inventories 800 000
Trade and other receivables 1 200 000
Cash and cash equivalents 400 000
Total assets 5 200 000
EQUITY AND LIABILITIES
Equity 2 600 000
Ordinary share capital (600 000 shares) 1 200 000
Retained earnings 1 400 000
Non-current liabilities 1 600 000
Long-term loan 1 600 000
Current liabilities 1 000 000
Trade and other payables 976 000
Income tax payable 24 000
Total equity and liabilities 5 200 000

Additional information
1) Sales for the year ended 31 December 2021 are expected to total R7 200 000, an increase of R800 000 over the previous year ended 31 December 2020. A profit margin (net profit margin) of 10% is expected.
2) A final dividend of 80 cents per share is expected to be recommended on 31 December 2021. These dividends will be paid during 2022.
3) Cash and cash equivalents and Ordinary share capital are expected to remain unchanged.
4) Trade and other receivables represent approximately 20% of the annual sales.
5) The company’s closing inventory will change directly with changes in sales for the financial year ended 31 December 2021.
6) An old machine (Cost price R400 000; Accumulated depreciation R360 000) is expected to be sold at carrying value on 31 December 2021 and a new machine with a cost price of R500 000 will be purchased on the same date to replace it. Total depreciation for the year ended 31 December 2021 is estimated at R240 000.
7) Trade and other payables will change directly in response to changes in sales for the financial year ended 31 December 2021.
8) Income tax payable is likely to equal 10% of the estimated tax of R342 000.
9) R400 000 of the long-term loan will be repaid during the financial year ended
31 December 2021.

QUESTION 2 (15 Marks)
REQUIRED
Use the information given below to calculate the following:
2.1 Payback Period of Project B (answer expressed in years, months and days).(3 marks)
2.2 Accounting Rate of Return (on average investment) of Project B (answer expressed to two decimal places).(4 marks)
2.3 Net Present Value of Project A (amounts rounded off to the nearest Rand.)(4 marks)
2.4 Internal Rate of Return of Project B, if the net cash flows are R120 000 per year for five years (answer expressed to two decimal places).(4 marks)
INFORMATION
The following information relates to two capital investment projects:

	Project A	Project B
Initial cost	R400 000	R400 000
Expected useful life	5 years	5 years
Scrap/Residual value	R40 000	0
Depreciation per year	R72 000	R80 000
Expected annual profits	R	R
End of: Year 1 Year 2 Year 3 Year 4 Year 5	100 000 60 000 50 000 30 000 20 000	45 000 45 000 45 000 45 000 45 000

The company estimates that its cost of capital is 15%.

Answer rating: 100% (QA)

1 Sales 7200000 Net profit margin 10 Therefore net income SalesNet profit margin 107200000 720000 Number of shares 600000 Dividends per ... View the full answer