After posting excellent sales and net profit in the previous year Dreamit Electronics Ltd set its sights on growth and innovationas it celebrated its 10th anniversary in 2023. It has continually strived to become the leader in the electronics industry in SouthAfrica. The company is also committed to being a good corporate citizen, as it strives to fulfil both its economic and socialresponsibilities.The following reflects the financial position of the company on 31 December 2023:The carrying value of the fixed assets was R30 000 000 whilst the current assets comprised inventory of R9 400 000, accountsreceivable of R8 000 000 and cash of R1 600 000. The equity consisted of ordinary share capital, R17 000 000, and retainedearnings of R6 400 000. An amount of R22 000 000 was owed to Mesa Bank for a long-term loan. Trade creditors were owedR3 600 000.The following projections and proposals were made by Dreamit Electronics Ltd for 2024:The sales are expected to increase from R30 000 000 in 2023 to R40 000 000 in 2024. All the sales are on credit. Accountsreceivable is based on a collection period of 36.5 days. Accounts payable must be calculated using the percentage-of-salesmethod. The gross margin and net profit margin ratios are expected to be 25% and 10% respectively for 2024. All purchasesof inventory are on credit. Purchases for 2024 are projected at R25 000 000. The company expects to show a net increase incash of R500 000 during 2024. R24 000 000 will be spent on additional land and buildings during the fourth quarter of 2024.The total depreciation for 2024 is forecasted at R4 000 000. 1 000 000 ordinary shares are expected to be sold at R4 eachduring January 2024. Dividends of R3 000 000 are expected to be recommended by the directors at the end of 2024. These dividends will be paid during 2025. R5 500 000 will be paid to Mesa Bank during 2024. This amount includes R2 000 000 forinterest on loan. The amount of external funding (non-current debt) required must be calculated.Dreamit Electronics Ltd has identified a new machine that it is considering for purchase at the start of 2025. The cost the machineis R4 000 000. The machine is expected to have a useful life of five years. No scrap value is anticipated. The annual profitsthat are expected to be generated from the machine are as follows:Year 1 R600 000; Year 2 R620 000; Year 3 R700 000; Year 4 R660 000; Year 5 R560 000.The cost of capital is 15%. Depreciation is estimated at R800 000 per year. Question: calculate the Internal Rate of Return (expresses to two decimal places) if the net cash flows are R1 200 000 per year for five years. answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.
After posting excellent sales and net profit in the previous year Dreamit Electronics Ltd set its sights on growth and innovation
as it celebrated its 10th anniversary in 2023. It has continually strived to become the leader in the electronics industry in South
Africa. The company is also committed to being a good corporate citizen, as it strives to fulfil both its economic and social
responsibilities.
The following reflects the financial position of the company on 31 December 2023:
The carrying value of the fixed assets was R30 000 000 whilst the current assets comprised inventory of R9 400 000, accounts
receivable of R8 000 000 and cash of R1 600 000. The equity consisted of ordinary share capital, R17 000 000, and retained
earnings of R6 400 000. An amount of R22 000 000 was owed to Mesa Bank for a long-term loan. Trade creditors were owed
R3 600 000.
The following projections and proposals were made by Dreamit Electronics Ltd for 2024:
The sales are expected to increase from R30 000 000 in 2023 to R40 000 000 in 2024. All the sales are on credit. Accounts
receivable is based on a collection period of 36.5 days. Accounts payable must be calculated using the percentage-of-sales
method. The gross margin and net profit margin ratios are expected to be 25% and 10% respectively for 2024. All purchases
of inventory are on credit. Purchases for 2024 are projected at R25 000 000. The company expects to show a net increase in
cash of R500 000 during 2024. R24 000 000 will be spent on additional land and buildings during the fourth quarter of 2024.
The total depreciation for 2024 is forecasted at R4 000 000. 1 000 000 ordinary shares are expected to be sold at R4 each
during January 2024. Dividends of R3 000 000 are expected to be recommended by the directors at the end of 2024. These dividends will be paid during 2025. R5 500 000 will be paid to Mesa Bank during 2024. This amount includes R2 000 000 for
interest on loan. The amount of external funding (non-current debt) required must be calculated.
Dreamit Electronics Ltd has identified a new machine that it is considering for purchase at the start of 2025. The cost the machine
is R4 000 000. The machine is expected to have a useful life of five years. No scrap value is anticipated. The annual profits
that are expected to be generated from the machine are as follows:
Year 1 R600 000; Year 2 R620 000; Year 3 R700 000; Year 4 R660 000; Year 5 R560 000.
The cost of capital is 15%. Depreciation is estimated at R800 000 per year.
Question:
calculate the Internal Rate of Return (expresses to two decimal places) if the net cash flows are R1 200 000 per year for five years. answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.
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