Case Study

PROGRAMME

Bachelor of Business Administration$$

Bachelor of Commerce in Retail Management$$

Bachelor of Commerce in Supply Chain Management$$

Bachelor of Commerce in International Business

MODULE Financial Planning and Control

MARKS $30$

Answer ALL questions. $[30$ MARKS$]$

Read the case study and answer the questions that follow:

SENTRA LIMITED: PLANNING FOR THE FUTURE

Sentra Limited is a public company whose headquarters is in Johannesburg, South Africa. It is a manufacturer of automotive products, with a promise to its customers of high quality at affordable prices.

It commenced operations on $02$ January $2022$ with authorised share capital of $600000$ ordinary shares of

which $400000$ have been issued at R$10$ per share.

At the end of $2022$ the fixed assets $($at carrying value$)$ totalled R$2000000,$ inventories amounted to

R$1280000,$ R$2000000$ was owed by trade debtors, cash in the bank amounted to R$320000,$ the

accumulated undistributed profits amounted to R$400000$ and R$1200000$ was owed to the trade creditors.

The sales of Sentra Limited for $2022$ amounted to R$8000000.$

The following projections and proposals were made for $2023$:

The sales revenue is expected to increase to R$10000000.$ The after$-$tax return on sales is estimated at

$20\%.$ The directors are expected to propose dividends of $200$ cents per share at the end of the year

$($payable during $2024).$ A vehicle with a cost price of R$300000,$ which was damaged in an accident during

December $2022$ and subsequently repaired, is expected to be traded in at a loss of R$20000$ during the

last quarter of $2023$ for a new vehicle with a cost price of R$350000.$ The accumulated depreciation of the

previously damaged vehicle on the date of the trade$-$in is expected to be R$80000.$ Depreciation for the

year is estimated at R$300000.50000$ ordinary shares are expected to be issued during March $2023$ at

R$15$ per share. Inventories, accounts receivable and accounts payable are to be calculated using the

percentage$-$of$-$sales method. The amount of cash and cash equivalents must be determined $($balancing

figure$).$

Sentra Limited has identified a new machine that it is considering for purchase during $2024.$ The machine

would cost R$1000000,$ excluding installation costs of R$200000.$ The machine is expected to have a

useful life of five years and depreciation per year is estimated at R$220000.$ It is expected that the new

machine would generate cash receipts of R$540000$ per year and its annual cash outflows would total

R$220000.$ At the end of year $3,$ the machine would require a major overhaul costing R$200000$ cash $($not

included in the figures above$).$ A scrap value of R$100000($not included in the figures above$)$ is

anticipated. The cost of capital is $15\%.$

QUESTIONS

$1.$ Prepare the Pro Forma Statement of Financial Position as at $31$ December $2023.$

$($Ignore the investment opportunity.$)(15$ marks$)$

$2.$ Refer to the investment opportunity for $2024($the purchase of a new machine$)$ and

calculate the following. $($Ignore taxes.$)$

$2\mathrm{.}1$ Accounting Rate of Return on average investment $($expressed to two decimal

places$).(5$ marks$)$

$2\mathrm{.}2$ Net Present Value. $($Use only present value table $1$ discount factors from the module

guide to calculate the present values of the net cash flows.$)(5$ marks$)$

$2\mathrm{.}3$ Internal Rate of Return $($expressed to two decimal places$)$ if the net cash flows

generated by the machine are R$320000$ per year for five years and the scrap value

is R$50000.$ Your answer must include two net present value calculations $($using

consecutive rates$/$percentages$)$ and interpolation. $($Recommended: Use present

value table $2$ for R$320000$ per year and present value table $1$ for R$50000.)(5$ marks$)$