SUNTIDE LIMITED'S PLANS FOR WORKING CAPITAL AND CAPITAL BUDGETING
Suntide Limited is a secondary sector entity that commenced operations during 2021 manufacturing Product Zap. Some
important information pertaining to 2021 is as follows:
The total sales for the year amounted to R6 624 000, of which 50% was on credit. Credit purchases for the year totalled.
R2 376 000. The statement of financial position as at 31 December 2021 reflected balances of R64 800, R360 000 and
R100 800 for inventories, debtors and creditors respectively. The average age of inventories was calculated to be 18
days.
During the first quarter of 2022 Suntide Limited commenced with its planning process for 2023. The following budgeted
information was obtained:
Suntide Limited intends purchasing 25 000 components per month at R10 per unit to produce Product Zap. The cost of
placing an order is R20 and the annual carrying cost per component is R0.75. The lead time for the delivery of an order
is 12 days. It is estimated that the number of workdays for 2023 will be 240. The credit terms of the supplier for the
components are 30 days but a discount of R7 500 will be granted if the monthly account i settled within 12 days.
Suntide Limited intends investing in a project during 2023. The project is expected to cost R2 000 000 with a four-year
useful life, and no residual value. Depreciation is estimated R500 000 per year. The project is expected to generate
net cash flows of R700 000 for 2023. The net cash flows are expected to increase by 10% each year thereafter. The
desired rate of return by the company is 15%.
Answer ALL the questions in this section.
QUESTION 1
Calculate
QUESTION 2
Calculate the following for 2023:
2.1
2.2
2.3
QUESTION 3
cash conversion cycle 2021 (expressed to two decimal places). (Assume a 360-day year.)
3.1
Annual Economic order quantity (EOQ)
Reorder point
The cost (as a percentage, expressed to two decimal places) to Suntide Limited of not accepting
the discount of R7 500. (Assume a 360-day year.)
Calculate the following in respect of the project (2023). Ignore taxes.
Net Present Value (with amounts expressed to the nearest Rand)
3.2
Accounting Rate of Return on average investment (expressed to two decimal places)
(5 Marks)
(4 marks)
(3 marks)
(5 marks)
(4 marks)
(4 marks)