Calculator Allowed: Yes



Transcription of this question: 2.Neat OrganizationNeat Organization is a leading provider Of resort-based budget holidays in Spain for priceconscious consumers. Its business strategy is based on offering low-cost holidays. Competition inthis market segment is becoming increasingly intense. Information on the external environment isincluded below:Predicted macro-economic trendsYear20092010201120122013Economic Interest rateswth rates2%2%3%2%3%As part Of its growth strategy, Neat Organization intends to purchase a number Of coaches totransport holidaymakers from the airport to the resort as the cost Of transport has increased rapidly inrecent years. After 7 years (the predicted useful life Ofthe coaches), the management hopes that theywill have enough residual value that can then be used towards purchasing a new fleet. The projectednet cash inflows from this investment are shown below:Year234567Total inflowsThe initial cost Of the coaches is Sl 000Pro •ected net cash inflows S)100 ooo150 ooo250000300000250000200 ooo200 ooo1450000Excerpt from the profit and loss account for Neat Organizationfor the year ended 31 December 2008Sales revenueCost of oods soldGross rofitAdvertising expensesOther indirect expensesEx ensesNet fit before interest and tax2012444(This question continues on the following page)Excerpt from Neat Organization ‘s balance sheet as at 31 December 2008Fixed assetsCurrent assetsStockDebtorsCashTotal assetsCurrent liabilitiesCreditorsShort-term borrowinTotalNet assetsShare c italLoan ca italRetained profitCapital employed30 ooo2 ooo ooo500 ooo700 ooo3 200 ooo1 500000500 ooo2 ooo ooo31 200000200000004000000720000031200000(a)(b)(c)(d)Define the following terms:(i) fixed asset(ii) share capital.Explain how the predicted changes in economic growth rates and interest ratesmay affect Neat Olganization.Calculate the following (Show all your working):(i) the gross profit margin and gearing ratio for Neat Olganization for 2008.(ii) the payback period for the proposed investment in coaches.(iii) the net present value (NPV) using a discount rate Of 8 0/0.(iv) the depreciation at 20% using the reducing balance method for the first7 years Of the coaches.Using financial and non-financial information, examine the decision OfNeat Organization to go ahead with the investment in coaches.[2 marks/[2 marks/[6 marks][2 marks][2 marks][2 marks][3 marks][6 marks/

Leave a Reply