1.
1 C 1
1.2 A 1
1.3 A 1
1.4 A 1
1.5 C 1
1.6 C 1
1.7 D 1
1.8 B 1
1.90 B 1
1.10 B 1
1.11 B 1
1.12 A 1
1.13 B 1
1.14 C 1
1.15 C 1
1.16 C 1
1.17 A 1
1.18 C 1
1.19 A 2
1.20 B 2
1.21 A 2
1.22 D 2
1.23 C 2
1.24 C 2
30
0
3.1 Define
Option is Is an agreement that gives the owner the right, but not the obligation, to
buy or sell a specific asset at a specific price for a set period of time
Call option is the right to buy an asset at a fixed price during a particular perio
Put option is the right to sell an asset at a fixed price during a particular perio
time (i.e., opposite of a call option)
Forward is: is a legally binding agreement between two parties calling for the sale
an asset or product in the future at a price agreed on today
3.2 Key differences between option contracts and forward contracts:
•Forward contract,
•both parties are obligated to transact; one party delivers
the asset, and the other party pays for it
•No money changes hands when a forward contract is
created
•Option,
•the transaction occurs only if the owner of the option
chooses to exercise it
•Buyer of an option contract gains a valuable right and
must pay the seller for that right.
•Price of the option is frequently called the option premium
ight, but not the obligation, to 1
ce for a set period of time
d price during a particular period
1
d price during a particular period of 1
o parties calling for the sale of 2
e agreed on today
1
1
1
1
10
3.1 Limited to 2 marks
Profit will decrease as a result of a stronger rand. 1
Profit will increase as a result of a weaker rand. 1
3.2 Limited to 2 marks
Short run exposure/Transaction risk 1
Day-to-day fluctuations in exchange rates creating short-run risks for firms 1
3.3 Limited to 1 mark
Hedge with FEC /Option 1
3.4 Limited to 2 marks
258 000*17.50= 4,515,000 2
3.5 Limited to 3 marks
Cost 4,350,000 1
Selling Price 4,545,960 2
Profit 195,960 1
1P
P
Y0 Y1
Investment (1,000,000)
WIC (200,000) (80,000)
Cash flows ( after tax)
Sale at end
(1,200,000) 146,000
Discount rate 20%
NPV Calculation (366,601)
Conclusion
Accept/Reject Reject
Cash flow calculations
Sales 1,200,000
Variable costs (720,000)
480,000
Fixed costs (280,000)
Depreciation (excluded- non -
cash)
Interest ( excluded - finance -
costs)
Cash flows before tax 200,000
Less Tax Payment (54,000)
Cash Flows after tax 146,000
Tax Calculation
Cash Flows before tax 200,000
Less Wear and tear
Sale at end of period
Taxabe income 200,000
Tax at 27% 54,000.00
ØQualitative factors should always be taken into account, over and above the financial figures, even if the
ØReliability of machine purchased;
ØMachines life span
ØSuppliers reliability
ØEnvironmental aspects
ØSocial aspects: job losses; labour relations
Øany other valid points
Y2 Y3 Y4 Y5
56,000 (224,000)
248,540 287,084 329,482 376,121
300,000
248,540 343,084 329,482 452,121
528,000 580,800 638,880 702,768
(280,000) (280,000) (280,000) (280,000)
- - - -
- - - -
248,000 300,800 358,880 422,768
540 (13,716) (29,398) (46,647)
248,540 287,084 329,482 376,121
248,000 300,800 358,880 422,768
-250000 -250000 -250000 -250000
300000
(2,000) 50,800 108,880 172,768
(540.00) 13,716.00 29,397.60 46,647.36
MAX
ve the financial figures, even if the project shows a positive NPV e.g
1
2
1
1
1
1.0
1.0
1
1
1
1
1
2
1
1
2
22
20
Statement of Financial Position 2021 2020
Assets 2021 2020
Fixed assets 110,225 53,550
Current assets 393,980 140,620
Inventory 148,500 64,590
Debtors 245,480 74,280
Bank balances and cash - 1,750 2
Total assets 504,205 194,170 3
Equities & Liabilities
Ordinary Share Capital and Premium 81,200 81,200
Retail income 105,275 38,250
Ordinary Shareholders interest 186,475 119,450
Bank Borrowings and loans 262,511 56,778
448,986 176,228
Current liabilities 55,220 17,942
Creditors 54,620 17,942
Bank overdraft 600
504,205 194,170
Statement of Financial Performance 2021 2020
Revenue 692,500 420,500
Gross Profit 215,500 52,300
Depreciation (12,818) (7,650)
Interest paid (44,080) (10,220)
Income before tax 158,603 34,430
Taxation (28,842) 768
Net Income 129,761 35,198
Therefore cost of sales 477,000 368,200
Earnings per share R2.232 R0.626
Dividends per share R0.952 R0.184
Profitability
One mark each for calculating : Profi margin, Return of Asset and Return on equity
GP
Net profit percentage ratio ( profit margin)
GP or NP percentage has more that double as compared to the previous year
This is significant considering the fact that turnover increased by 64.7% from 2020 due to the policy of aggressive gr
However increase in sales appears to be financing partly using long term debt.
Also, the increase in sales might be funded through credit sales which have increased in 2020
This might suggest that sales have increased but there is no positive impact on cash flows as credit sales could large
The substantial increase in the net profit percentage ratio is due to the high GP% ratio
Return on assets = Net income before tax and interest / FA + CA
Return on equity
Fixed Asset turnover
The return on assets has increase from 2018 to 2019 due to the significant increase in profit and sales
However the slight decrease in fixed asset turnover seems to suggest an inefficient use of assets.
The fact that ROE is still greater than ROA suggest that the company is achieving positive financial leverage
This suggest that debt is being used effectively to the benefit of shareholders
Solvency ratios
One mark each for calculating : Debt equity ratio, total debt ratio, and interest cver
Debt : Equity
Total debt Ratio
Debt
Equity
Times interest earned
the company has gone from a predominantly equity-financed company to a debt-financed company
Profits have increased substantially, but so has financial risk
The level of debt is not yet a concern since the interest cover is still high
The times interest earned ratio has improved marginally from previous year
This is due to the high earnings and low interest rates
However a change in interest rates might have a negative impact on the cover
Liquidity ratios
One mark each for calculating : Current ratio & Quick ratio
Current ratio
Acid test ratio
The current ratio is marginally down, but very strong
This is mainly due to high increase in debtors and inventory
6.2 Analysis
•No underlying theory exists to help us identify which quantities to look at and to use in establishing benchmarks
•Many firms are conglomerates, owning unrelated lines of business, and consolidated financial statements for such firms do n
•Major competitors and natural peer group members in an industry may be scattered around the globe
•Financial statements from outside the U.S. do not necessarily conform to all GAAP principles
•Even companies that are clearly in the same line of business may not be comparable
•Different firms use different accounting procedures
•Different firms end their fiscal years at different times
•Unusual or transient events may affect financial performance
2021 2020
3
31.12% 12.44% 1
18.74% 8.37% 1
1
to the policy of aggressive growth 1
1
1
ws as credit sales could largely be from non paying debtors 1
1
25.74% 18.13% 1
69.59% 29.47% 1
6.28 7.85 1P
rofit and sales 1
1
ve financial leverage 1
16
3
1.41 0.48 1
0.58 0.32 1P
262,511 56,778
186,475 119,450
4.60 4.37 1
ed company 1
1
2
1
1
1
0
2
7.13 7.84 1
4.45 4.24 1
1
1
6
Max 25
shing benchmarks
statements for such firms do not fit any neat industry category
MAX 10
MAX 5
MAX 5