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MAC3702 Assignment 2 Semester 2 2024 - DUE 12 September 2024
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QUESIONS WITH ANSWERS MAC3702 Assignment 2 Semester 2 2024 - DUE 12 September 2024
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[Company name]MAC3702 Assignment
2 Semester 2 2024 -
DUE 12 September
2024
QUESTIONS WITH ANSWERS
,MAC3702 Assignment 2 Semester 2 2024 - DUE 12 September 2024
QUESTION 1 (25 marks; 45 minutes)
Lesidi Limited, a company listed on the Johannesburg Stock Exchange (JSE),
specialises in manufacturing paint. Their flagship product, Yizo, has been rated the best
paint by the South African Paint Association for the past ten years. This top award has
driven Lesidi's success and challenged them to innovate continuously to maintain Yizo's
quality standards. The company has developed various Yizo product variations and is
always looking for innovative ways to improve and expand the range. Recently, Lesidi
identified a promising spray paint product that could complement the Yizo product line
without compromising its brand quality. They are considering acquiring Bafifi (Pty)
Limited, as they are impressed with the high-quality spray paints Bafifi produces. Bafifi
manufactures spray paint and primer products. Over the past five years, Bafifi has
experienced significant growth, driven primarily by its innovative product development.
Recently, Bafifi introduced an all-in-one, single-coat application spray paint. This new
product allows customers to apply just one coat for both priming and painting,
eliminating the need for separate primer and paint applications. Lesidi is considering
making a bid for Bafifi. Bafifi has 10 million shares in issue. The following information
relating to Bafifi is provided: Year 1 Year 2 Year 3 Year 4 2023 2024 2025 2026 R’000
R’000 R’000 R’000 Actual Forecast Forecast Forecast Revenue 260 000 291 200 * *
, Cost of Sales (125 000) (174 720) * * Gross Profit 135 000 116 480 * * Other Operating
expenses (40 000) (46 000) * * Depreciation (23 000) (23 000) (23 000) (23 000) Profit
from Operations 72 000 47 480 * * Finance Costs (24 000) * * * Profit before tax 48 000
* * * Taxation – 27% (12 960) * * * Profit after tax 35 040 * * * QUESTION 1 (continued)
1. Forecast for 2024 to 2026 Bafifi’s forecast was prepared using the following
assumptions
• Sales prices are projected to increase by 12% in 2024 and thereafter by a constant
growth of 7%.
• Bafifi’s gross profit percentage is expected to decrease in 2024 due to the introduction
of a new product thereafter increase by 5% in 2025 and then return to the 2023 levels in
2026.
• Bafifi’s expects to increase its operating profit margin by limiting the increase in other
operating expenses, to only 5% per year from 2025.
• Assume that depreciation amount equals tax allowances.
• Bafifi took out a loan with Buzz bank of R100 million at the beginning of 2023 to
finance the development of the new spray product. The loan bears an interest rate of
10% with interest payable annually on the last day of the year. The loan capital amount
is repayable in 2025. The interest payments for 2023 included interest payments on
another loan with Buzz Bank, which was fully settled in 2023.
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