Turning Pointing Ltd. (Turning Point) is an entity listed in the consumer goods sector of the...

 

   

   

 

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Turning Pointing Ltd. ("Turning Point") is an entity listed in the consumer goods sector of the JSE and has a 30 April financial yearend. Turning Point sells a variety of household appliances from the entity's outlet shops nationwide. The entity is planning to start selling Turning Point's products online from the entity's website in order to expand the business. A projected cash flow budget of the planned project has been drafted which includes the initial investment required, additional funds required to meet expected additional sales manufacturing and other related costs, as well as the additional cash inflow to Turning Point for sales. After comparing this projected cash flow budget for the online shop to Turning Point's projected cash flow budget for the entity as it is currently, it was identified that Turning Point will require R9 800 000 for a period of 12 months, in addition to how much the entity has available for the planned project. The capital structure was assessed and it was determined that it would be best for the entity to meet this funding need by means of debt-in particular taking out a loan. Turning Point can either obtain the loan locally or, alternatively, from abroad. Notes: 1. The average interest rate that Turning Point will qualify for in South Africa, is 4.5% per annum above the prime rate. 2. Turning Point has determined the best loan option available abroad (in respect to interest rate, repayment terms alignment to the planned project's cash inflows, etc.), is from Japan. Turning Point will therefore take out a loan from Japan should the entity decide on an international loan. 3. The Japanese Yen spot buying rate is R1: Yen 8.10. REQUIRED: 2.1 4. The Japanese Yen selling rate is R1: Yen 7.90. 5. The South African prime rate is 7.6% per annum. 6. An interest rate of 1.4 % per annum will be applicable on the Japanese loan. 7. A premium of 5.3% is relevant to applicable derivatives. 8. All taxation implications may be ignored. 2.3 22/ Determine the financing cost of a Japanese loan to Turning Point Ltd. Present the answer in ZAR (South African Rands). Explain the financial risk which the Japanese loan specifically exposes Turning Point Ltd. to. Provide 2 recommendations to address the applicable risk. 2.5 Explain the financial risk which the South African loan specifically exposes Turning Point Ltd. to. Provide 2 recommendations to address the applicable risk. 2.4 Determine the financing cost of a South African loan to Turning Point Ltd. Advise Turning Point Ltd what decision(s) should be made regarding the required funds, based on the answers to questions 2.1-2.4. Turning Pointing Ltd. ("Turning Point") is an entity listed in the consumer goods sector of the JSE and has a 30 April financial yearend. Turning Point sells a variety of household appliances from the entity's outlet shops nationwide. The entity is planning to start selling Turning Point's products online from the entity's website in order to expand the business. A projected cash flow budget of the planned project has been drafted which includes the initial investment required, additional funds required to meet expected additional sales manufacturing and other related costs, as well as the additional cash inflow to Turning Point for sales. After comparing this projected cash flow budget for the online shop to Turning Point's projected cash flow budget for the entity as it is currently, it was identified that Turning Point will require R9 800 000 for a period of 12 months, in addition to how much the entity has available for the planned project. The capital structure was assessed and it was determined that it would be best for the entity to meet this funding need by means of debt-in particular taking out a loan. Turning Point can either obtain the loan locally or, alternatively, from abroad. Notes: 1. The average interest rate that Turning Point will qualify for in South Africa, is 4.5% per annum above the prime rate. 2. Turning Point has determined the best loan option available abroad (in respect to interest rate, repayment terms alignment to the planned project's cash inflows, etc.), is from Japan. Turning Point will therefore take out a loan from Japan should the entity decide on an international loan. 3. The Japanese Yen spot buying rate is R1: Yen 8.10. REQUIRED: 2.1 4. The Japanese Yen selling rate is R1: Yen 7.90. 5. The South African prime rate is 7.6% per annum. 6. An interest rate of 1.4 % per annum will be applicable on the Japanese loan. 7. A premium of 5.3% is relevant to applicable derivatives. 8. All taxation implications may be ignored. 2.3 22/ Determine the financing cost of a Japanese loan to Turning Point Ltd. Present the answer in ZAR (South African Rands). Explain the financial risk which the Japanese loan specifically exposes Turning Point Ltd. to. Provide 2 recommendations to address the applicable risk. 2.5 Explain the financial risk which the South African loan specifically exposes Turning Point Ltd. to. Provide 2 recommendations to address the applicable risk. 2.4 Determine the financing cost of a South African loan to Turning Point Ltd. Advise Turning Point Ltd what decision(s) should be made regarding the required funds, based on the answers to questions 2.1-2.4.

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