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Transcription of this question: 5.As part Of his evaluation Of Option 3 (lines 153—157), Kos Palouk consulted Sami Taibi, who ownedand operated a medium-sized grocery store. Sami said that Beral had no reliable produce suppliers andthere was a business opportunity if someone could make reliability their unique selling point (USP)_However, the deterioration Of the situation outside Of the UWP-protected area was making reliablepurchase and distribution Of produce difficult (Item l).TO ensure reliability, Kos would require a loan of $42 000 to:• Purchase two lorries (2 at S 15000 = S30000). Because Of the poor quality Of the roads, the lorrieswould require frequent maintenance. One lorry could still deliver produce while the Other wasbeing maintained.• Increase working capital (S 12000) for higher stock levels.Unfortunately, the bank will loan Kos a maximum Of $30000, as they do not wish to loan funds forworking capital as well as for the purchase Of the lorries (Item 2).Kos had an idea. He proposed to Sami that they merge his grocery store with Kos’ wholesaleproduce business. The combined operation would be organized as a private limited company andKos proposed a 50-50 share ownership. It would also have the following advantages:• It would have two revenue streams: wholesale (from Kos’ operations) and retail (from Sami’sgrocery store).• The grocery store would acquire produce at wholesale prices.• The combined operation wouldalways guarantee supply to the grocery store before Other customers.However Sami was reluctant to give up 50% ownership Of his grocery store for an unprovenoperation. Sami made a different proposal: Kos would merge his wholesale operation intoSami’s grocery store in exchange for 25% Of the shares Of the new private limited company.The merger would also result in a new contract and management structure (Items 3 and 4).(Question 5 continued)(a)(b)(c)(d)(e)Identify two advantages to Kos Palouk Of merging his wholesale producebusiness with Sami Taibi’s grocery store.Explain two advantages to Sami Taibi and Kos Palouk Of organizing the new(merged) business as a private limited companyCalculate:(i)(ii)the annual depreciation expense of one Sl 5000 lorry with a useful life Of7 years and a residual value Of Sl 000 using the straight line method.the depreciation expense in the second year Of one S 15 000 lorry usingthe reducing balance method, with a depreciation rate Of 32% (show allyour w0 rking).Using Vroom’s expectancy theory Of motivation, ortheories, examine Sami Taibi’s proposalUsing information contained in the case study andKos Palouk on Sami Taibi ‘s proposal.any Other motivationItems 1 to 4, advise[2 marks][4 marks][l mark][2 marks][9 marks][12 marks]Item 1: Extract from Beral Courier, a local newspaperRumours Of increased violence outside the UWP-protected area were recently confirmed by the OfficeOf the local governor. Attacks against vehicles on roads near Bosca, Boussena, Saura and Gana havebeen confirmed by local police. One driver, who was returning from Saura, was seriously injuredIn another instance, there was severe damage to a road, causing vehicles to take a different route, whichdoubled the travel time. The local governor announced an increase in police patrols in the area.The impact Of the increased violence has had an immediate impact on local Beral shops, which reportedshortages Of produce.Item 2: Bank loan Offer to KosLoan amount:Interest rate:Repayment schedule:Monthly payment amount:Collateral:s300008% (fixed)7 years, payments monthlyS475 (principal and interest)all assets Of business, including the two lorries,and Kos’ personal residenceItem 3: Sami’s proposal for a new contract3.1: At start Of new (merged) businessKos’ ownership:Sami’s ownership: 75 %Kos’ monthly salary: S650If there are dividends, Kos would receive 25 % Of the dividends.The new private limited company would take out the $3000() bank loan. Sami’s grocery store wouldprovide the additional Sl 2 000.3.2: Potential change in ownership structureSami has set Kos a target Of annual sales Of $96000 (S8000 per month on average) for the wholesaleoperation for 2 consecutive years (this figure would not include “sales” to Sami’s grocery store).• If the wholesale operation did not reach the annual sales target for 2 consecutive years within7 years (the duration Of the loan), Kos would remain a 25 % owner with his original salary Of $650 permonth (no change in ownership structure).• If the wholesale operation meets the two-year performance target, Kos would receive an additional24% ownership in the private limited company. His salary would be adjusted so that it was alwaysequal to 96% Of Sami’s salary. He would also be entitled to 49% Ofany dividends.Item 4: Management structure if Sami’s proposal is implementedNew (merged) business:General managerGrocery store:Profit centre managerSamiWholesale operation:Profit centre managerKos

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