NAME

TINOTENDA

SURNAME

BARWE

STUDENT NUMBER

201517409

MODULE

COMM 100

DATE

29 JULY 2015
UNIVERSITY OF JOHANNESBURG
TUTORIAL HOMEWORK 2

SECTION A
a. Total cost = variable costs + fixed costs
= 1000(20 + 150 + 130) + (9 000 + 950 + 2 000)1 000
= 300 000 + 11 950 000
= R 12 250 000

b. Breakeven point = (total fixed costs)/( selling price per unit - variable cost per unit)
= (11 950 000)/(468 - 300)
= 11 950 000/168
= 71 131 units

c.i) Payback Period '' project innovation''

(10 000 + 12 000 + 16 000 +20 000)
= 4 Years

ii)

'' project improvement''

(25 000 + 18 000 ) + (6000/12 000)
= 2 years 6 months.

d.
Cash
flows
initial

Discounting
factor at
15%
*

year 1

0.8696

year 2

0.7561

year 3

0.6575

year 4

0.5718

year 5

0.4972

Values for
project
innovation
58 000 000
000
10 000 000
000
12 000 000
000
16 000 000
000
20 000 000
000
43 000 000
000

Values for
project
improvement
49 000 000
000
25 000 000
000
18 000 000
000
12 000 000
000
9 000 000
000
8 500 000
000

total
present
value

Present value
for project
innovation

8 696 000 000

21 740 000 000

9 073 200 000

13 609 800 000

10 520 000 000

7 890 000 000

11 436 000 000

5 146 200 000

21 379 600 000

4 226 200 000

61 104 800
000

Net Present Value = Total Present Value - initial investment

I) ''Project innovation''

= 61 104.80 - 58 000
= (3 104.80)1 000 000
= R3 104 800 000

II) ''Project improvement''

= 52 612.20 - 49 000
= (3 612.2)1 000 000
= R3 612 200 000

Present value for

project
improvement

52 612 200
000

d. Since ''project improvement'' have a shorter payback period of 2.5 years compared to
"project innovation'' with four years it is wiser to invest in ''project improvement'' since it
also results in significant productivity and efficiency gains of their current operations.
Moreover, ''project improvement'' have got a greater net present value compared to the other
project, which means chances are very high that ''project improvement'' will yield desired
results and also will increase the current liquidity position of Gold Dust Ltd.

SECTION B
QUESTION 1

Since Eskom wants equity injection it should consider both short term and long term financing
options, but long term finance is the best option, below is the discussion of both financing
methods
Since Eskom have a lot of assets, it can use its assets as collateral security to acquire a bank loan
to finance its operations. A bank loan have got an advantage of lower interest rates as
compared to a bank overdraft, hence it is appropriate to acquire a bank loan. Furthermore,
bank loan providers do not form part of the owners of the business since a bank loan can be
repaid at a later date, however, a bank loan have got an disadvantage since it can not be repaid
before the date of maturity, if any attempt to pay an lump sum is tried, there will be a penalty
fee which in most cases is very high.
More so, Eskom can be listed on the Johannesburg Stock Exchange (JSE), and be able to issue
shares. Their are mainly two types of shares namely Ordinary Shares and Preference Shares,
each class of shares carries its own merits and demerits, to start with Ordinary shares, these are
shares which are owned by the owners of the business. Ordinary shareholders attend an annual
General Meeting, during these meetings they are entitled to voting rights which depends on the
number of shares held by an single individual. So issuing of Ordinary shares exposes a firm to
risk of takeover and dilutes equity. However issuing of ordinary shares can be of an advantage
when the new shareholders can provide brilliant ideas during meetings and ordinary share
dividends can be forfeited during economic depressions and period of lower profits.
Again, Preference shares is another alternative source of finance. preference shares have an
advantage since Preference shareholders do not have any voting right hence they do not
interfere with the decision making in a business, however Preference shareholders dividends
are fixed and some can be cumulative, hence during period of losses their dividends can be
carried forward to the next financial period and again whenever they are in three year arrears
of their dividends they can carry voting right and force a company into liquidation.
Short term financing methods applicable to Eskom are trade credit and accruals. Since Eskom is
working on an expansion project, it can source material required on credit an pay on a later
date after it had collected revenue from its electricity subscriptions. This method is the
cheapest source of finance since it is usually interest free during a stipulated time frame.

However failure to pay within an agreed time frame will attract a large sum of interest and also
if a firm totally fails to pay the debt, the company can be forced into liquidation .

QUESTION 2