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MAC3702 Assignment 2 Semester 2 2023 (Answers)

Name: MAC3702 Assignment 2 Semester 2 2023 (Answers)
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MAC3702 Assignment 2 Semester 2 2023 (Answers) QUESTION 1 (20 marks) Level II (Pty) Limited (“Level II”) is a manufacturing company that manufactures a wide range of freezers and fridges. Level II wants to expand their product range and is negotiating with Deep-zone (Pty) Limited (“D...

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mac3702 assignment 2 semester 2 2023 answers

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, QUESTION 1.

Report to the Directors of Level II (Pty) Limited
Subject: Maximum Purchase Price for the Acquisition of Deep-zone (Pty) Limited
Executive Summary:
This report aims to recommend the maximum purchase price for the acquisition of Deep-
zone (Pty) Limited ("Deep Zone"). Financial projections, based on various changes after
acquisition, are used to calculate the potential value of this investment.
Financial Projections for Deep Zone After Acquisition:
1. Income and Expense Projections:

Original Cost New Cost
Description (Rand) (Rand) Remarks

Turnover 977,500 977,500 No change

Raw Material - 25% cost reduction from new
Supplier A 207,000 155,250 supplier

Raw Material -
Supplier B 115,000 126,500 10% cost increase

Labour Costs 287,500 330,625 15% salary adjustment

Depreciation 92,000 92,000 No change

20% cost reduction from
Marketing Costs 51,750 41,400 internal division

Share of Head Office
Costs 34,500 34,500 No change

Total Expenses 787,750 780,275

Net Profit 189,750 197,225

Sale of Old Equipment N/A 23,000 One-time gain

Net Annual Cash
Flow 189,750 220,225

2. Valuation of Acquisition:
1. Net Annual Cash Flow: 197,225197,225 Rand (Net Profit) + 23,00023,000 Rand
(Equipment Sale) = 220,225220,225 Rand.
2. Value based on perpetuity: 220,2250.20=1,101,1250.20220,225=1,101,125 Rand.

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