Calculator Allowed: Yes
Transcription of this question: Nzuri Kio (NK)Nzuri Kio (NK) is a company that manufactures products made of glass, such as window’s andtable tops. NK sells its products in its own regional trading bloc, a group of eight countries that allhave developing economies. NK is located in a poor country where the national government is notvery efficient and public sector services are limited. The country’s infrastructure needs investment,and quality of life is low. At school, students are in very big classes, with over sixty students ineach; few students complete middle school.The manager of NK is considering purchasing new, high-quality equipment for its factory:glass-making machines from Carrucci SPA. Carrucci SPA is an Italian company that makesthe best glass manufacturing equipment in the world. Its computerized equipment is innovativeand very efficient. Glass can be cut perfectly, with almost no waste. However, the equipment isexpensive and requires highly skilled workers. The new equipment would lead to a better product,which should result in higher sales and a higher gross profit margin.The total cost of the equipment is $800 000. NKis considering two different sources of finance:(Option A) a seven-year $720 000 bank loan.(Option B) selling $800 000 in shares.Financial information for NK, for the year ending 31 May 2014:CashCost of goods soldCreditorsDebtorsExpensesInterestLoan capitalNet fixed assetsRetained profitShare capitalSales revenueShort-term borrowingStockTax$176 000$3 900 000$230 000$674 000$3 800 000$120 000x$2 600 000$970 000$300 000$8 200 000$270 000$320 000$70 000(a)(b)(c)Using a PEST framework, describe two extemal factors that may affect NK.Using data from the table:(i)(ii)(iii)(iv)calculate loan capital X (show all your working);construct a fully labelled balance sheet for NK;calculate NKs gross profit margin (no working required);calculate NKs forecasted gearing ratio for Option A and for Option B (show allyour working).Examine the disadvantages of Option A and of Option B as sources of finance forthe purchase of the new equipment.