Reference no: EM133114102
Question 1
The following information relates to Windhoek Alarm Systems ("WAS") for the financial years 2021 and 2020.
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Summarised Statement of Financial Position as at 30 November 2021
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2021
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2020
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N$
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N$
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Assets
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Non- current/fixed
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7 000 000
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6 000 000
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Inventory
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500 000
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300 000
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Receivables
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450 000
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420 000
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Cash
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650 000
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80 000
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Total Assets
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8 600 000
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6 800 000
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Equity and Liabilities
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Share capital (N$2 shares)
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5 000 000
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4 400 000
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Retained Income
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900 000
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500 000
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Long term Debt
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2 000 000
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1 000 000
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Payables
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700 00
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900 000
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Total equity and liabilities
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8 6000 000
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6 800 000
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Summarized Statement of Profit and Loss for the year ended 30 November 2021
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N$
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Sales (50% on credit)
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3 000 000
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Cost of sales
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2 000 000
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Depreciation
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120 000
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Interest Expense
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80 000
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Net Income before Tax
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900 000
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Dividends
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330 000
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Retained Income
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300 00
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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.