Posted: September 16th, 2017

Assignment – This assignment is broken into three sections

Assignment – This assignment is broken into three sections

Section 1
Dinks Ltd is a retailer of soft drinks.  The following table shows the company’s annual demand in boxes of soft drink bottles and relevant inventory costs under four different scenarios.
Scenario
1st    2nd    3rd    4th
Annual demand (boxes)    348,380    348,380    380,380    348,380
Cost per purchase order    85    85    85    85
Carrying cost per box per year    15    15    15    15
Quantity (boxes) per purchase order    1,750    1,852    1,987    2,100

?    Determine the economic order quantity for Dinks Ltd. Firstly using the EOQ formula to do so and secondly, without using the EOQ formula, based on calculations of total cost for each scenario.  Interpret the results
(350 words including calculations)
?    Dinks Ltd plants to review the credit terms offered to its existing customers.  Discuss three aspects of Accounts Receivable management the company should consider in its review process
(150 words)

Section 2
Ltd is a producer and retailer of sports equipment and one of its products is
skateboards. The company is preparing the budget for its production and sales of
skateboards for the year ending 31 December 2016. The sales price and production cost
details per skateboard are estimated below.
o    Price $31
o    Direct materials 5 units @$2 per unit
o    Direct labour 0.1 hour @$20 per hour
o    Variable overhead costs $3

The company’s budgeted fixed costs for skateboards are $12 000 per month and targeted
after-tax profit per month is $14 000 with the income tax rate being 30%.
?    Determine the number of skateboards Ltd would have to sell for the
year ending 31 December 2016 in order to:
i) break-even; and,
ii) achieve its annual targeted after-tax profit.
Show calculations and interpret the results.
(300 words)
?    Discuss four factors that may affect the company’s ability to achieve its break-even
sales and targeted profit for the year ending 31 December 2016.
(200 words)

Section 3
Associates is a retailer of tiles for commercial and residential properties. The company currently needs $1 500 000 to upgrade its retail shops.
The company determines its required rate of return based on the following information.
o    Return on 10-year Treasury bonds (risk-free rate) 10%
o    Average return for the industry share market 12.5%
o    Share systematic risk (ß) 0.8
o    Yield to maturity for similar bonds 12% per annum

a) An available option for Associates is issuing 1500 long-term bonds that have a term to
maturity of five years, par or maturity value of $1000 each and pay a coupon rate of
10%. Coupons are paid every six months.
?    If Associates issues a long-term bond, determine the present value of a bond and identify factors that influence this present value?  Show calculations
(250 words)

b) Associates considers issuing 60 000 ordinary shares at $25 per share. These shares will
pay a dividend of 1 dollar per share at the end of Year 1. The dividend will grow at a
rate of 6% per annum from Year 2 to infinity.
?    Determine the intrinsic value per share of these shares. Discuss three factors Associates should consider when valuing ordinary shares.
NB: To perform this calculation you will need to determine the company’s required
rate of return on equity – show calculations.
(250 words)