Reference no: EM133114102

Question 1

The following information relates to Windhoek Alarm Systems ("WAS") for the financial years 2021 and 2020. 

Summarised Statement of Financial Position as at 30 November 2021
	2021	2020
	N$	N$
Assets
Non- current/fixed	7 000 000	6 000 000
Inventory	500 000	300 000
Receivables	450 000	420 000
Cash	650 000	80 000
Total Assets	8 600 000	6 800 000
Equity and Liabilities
Share capital (N$2 shares)	5 000 000	4 400 000
Retained Income	900 000	500 000
Long term Debt	2 000 000	1 000 000
Payables	700 00	900 000
Total equity and liabilities	8 6000 000	6 800 000

 

Summarized Statement of Profit and Loss for the year ended 30 November 2021
	N$
Sales (50% on credit)	3 000 000
Cost of sales	2 000 000
Depreciation	120 000
Interest Expense	80 000
Net Income before Tax	900 000
Dividends	330 000
Retained Income	300 00

Additional information

• Shares are currently trading at N$2.30 per share.
• The new shares were issued at the beginning of the year. 
• Similar businesses have a return on investment of 15%

Required

Calculate the following ratios for 2021 and comment. Ratios for 2020 are given in brackets. 

Current ratio (0,89:1)

Acid test ratio (0,56:1) 

The debtors collection period (81 days) [all debtors are on 60 days accounts] 

Calculate the earnings per share and dividends per share for 2021. 4 14 4.3 How many shares were issued in 2021? 

Calculate the market to book ratio.

Explain the significance of this ratio 4 20 4.5 Calculate the return on equity using the Du Point Identity/Formula. Will the management be happy with this return?

Question 2

Simunye Enterprises ("SE") is budgeting to sell 1 000 units of product S in the forthcoming period. The selling price per unit of S is N$50. The cost of producing one unit of S is N$25. If SE sells on credit, they will incur a collection cost of about N$1 per unit sold. The weighted average cost of capital for SE is 15%. The normal year has 365 days. 

Required

Calculate the profit to the SE if:

All sales are for cash; 

Sales are made on credit and customers pay within 30 days;

Sales are made on credit and a 2% discount is granted if customers pay in 10 days. 50% of the customers will take advantage of the discount.