Minitech Ltd's projected profit for 2016 is $500,000, based on a sales volume of 100,000 units. Minitech Ltd sells USB flash drive for $15 each. Variable costs consist of the $5 purchase price and a $1 shipping and handling cost. Minitech's annual fixed costs are $300,000.

REQUIRED: a) Calculate Minitech Ltd's break-even point in unit sales and dollars.

b) Calculate Minitech Ltd's margin of safety in units.

c) Calculate Minitech Ltd's profit for 2016 if there is a 10% increase in projected unit sales.

d) For 2016, management expects that the unit purchase price of the USB flash drive will increase by 10%. Calculate the sales revenue Minitech Ltd must generate for 2016 to achieve profit $550,000, if the selling price and fixed cost remain unchanged.

(3 + 1 + 3 + 3 = 10 marks)

Question 2 Capital Investment Decisions (16 marks) Chima construction Ltd is deciding whether to purchase certain equipment in the coming year. The capital budget has a cap of $6,800,000 for the year. Stephen, project analyst at Chima construction Ltd, is preparing an analysis of the three projects under consideration by Rod, the company's owner. Project A

Project B Project C

Projected cash outflow

Net initial investment $5,000,000

$1,500,000 $4,000,000 Projected cash inflows Year 1 $1,000,000 $400,000 $1,000,000 Year 2

$1,000,000 $1,000,000

$1,000,000 Year 3 $1,500,000

$1,000,000 $2,100,000 Year 4 $1,500,000 $500,000 $1,000,000 Year 5 $3,000,000 $300,000 $300,000

Required rate of return 8%

8% 8%

REQUIRED a) Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which project should Chima construction Ltd choose?

b) Stephen thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Provide NPV projects ranking. c) Which projects would you consider should be funded? Briefly explain the reasons for your decision. (4 + 10 + 2 = 16 marks) Question 3: (15 marks) MelbCity Ltd has provided the estimates below for the January - March quarter in 2016:

January February March $ $ $

Sales of inventory 80,000 70,000 90,000 Purchases of inventory 20,000 30,000 40,000 Operating expenses 20,000 21,000 23,500

You are also given the following additional information:

· 25% of sales are cash sales, the remaining 75% are credit sales and are collected as follows: o 30% of credit sales are collected in the month of sale o 70% of credit sales are collected in the following month after sale

· Sales in the month of December 2015 were $42,000.

· All purchase of inventory is made on credit and are paid for in the same month they are incurred.

· Operating expenses include depreciation expense each month of $3,000. All expenses are paid for in the same month they are incurred.

· Loan repayments of $10,000 per month are due to start in February.

· The firm expects to sell some old machinery for $5,000 in January. New machinery worth $70,000 will be purchased in March (depreciation expense will not change as a result).

· The cash balance on 30th December 2015 is $5,000.

REQUIRED: a) Prepare a Schedule of expected receipts from Debtors (Account receivable) for MelbCity Ltd for the three months January to March 2016. Show all workings.

b) Prepare a cash budget for MelbCity Ltd for the three months January to March 2016. Show all workings.

c) MelbCity Ltd is budgeting for a cash deficit at the end of one of the months included in their cash budget. Briefly explain how MelbCityLtd could prepare for this forecasted deficit.