QUESTION 1 PARTNERSHIP
Use the information extracted from the accounting records of LS TRADING, a partnership owned by partners, LONG and SHORT, and prepare the Statement of Changes in Equity for the year ended 28 February 2017.
NB: copy the format given below in your answer book.
INFORMATION:
1.
Extracts from the Trial Balance on 28 February 2017.
Accounts
Debit
Credit
Capital : Long
300 000
Capital : Short
300 000
Current Account : Long
3 000
Current Account : Short
11 000
Drawings : Long
225 000
Drawings : Short
255 000
2. The net profit on 28 February 2017 amounted to R500 000.
3. The partnership agreement made provision for the following:
 Partners are entitled to the following monthly salaries :
Long, R9 500
Short, R11 000
 Interest on each partner’s capital must be provided at 12% p.a.
NB: Partners had made the following changes to their capitals during the year and were properly recorded:
 Long decreased his capital by R60 000 on 01 June 2016.
 Short increased his capital by R60 000 on 01 September 2016.
 Short is entitled to a special bonus of 10% of the net profit for the year.
 Partners are to share any remaining profits / losses equally.
2
&&
LS TRADING
Statement of Changes in Equity for the year ended 28 February 2017.
CAPITAL ACCOUNTS
Long
Short
Total
Balance on 01 March 2016
Changes in capital
Balance on 28 February 2017
CURRENT ACCOUNTS
Long
Short
Total
Balances on 01 March 2016
Net profit for the year
Interest on capital
Salaries
Bonus
Interest on drawing
Share of remaining profit / loss
Drawings
Balances on 28 February 2017

The security market line (SML) is an equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities. The SML equation is given below:

​

If a stock's expected return plots on or above the SML, then the stock's return is (-Select- insufficient, sufficient) to compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is (-Select- insufficient, sufficient) to compensate the investor for risk.

The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses.

Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE):

r_RF = 2%; r_M = 7%; RP_M = 5%, and beta = 1.4

What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
%

If inflation increases by 3% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.
%

Assume now that there is no change in inflation, but risk aversion increases by 1%. What is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.
%

If inflation increases by 3% and risk aversion increases by 1%, what is WCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places.
%

Bussines Law:

1. A is Trading and Tourism Company.
2. B is the owner of a Building

A interred with B in to an investment Contract where A will take the building as investment which is owned by B and will turn to Hotel. It was agreed that A prior to invest will take the approval from B on the plans and drawings. A sent the plans and the drawing to B for his approval. It was agreed that within a week if there were no answers from any of the parties on the correspondences of the other for any approval, therefore, it would mean that approval has been granted. A has started to do all the changes according to the plans and the drawings after a week from sending the plans. After a month A has received the reply from B with changes made in the plans and drawings. A has ignored the reply and continue the changes according to his plans. B was not happy and has demanded A to stop the work in the building and deliver the building at the same conditions he received it. A has replied to B that he has invested in the building according to the contract and if he wants the building back he has to pay the cost of his investments and the remedies of the damages that he has incurred. B has refused his demands and asked A to pay for all the repairs and damages caused to his building.

You have been contacted as a mediator between the A and B Please answer the following:

1. What kind of relation between A and B?
2. Identify the responsibility for both parties and their civil rights.
3. What is the real problem between the two parties?
4. Does B have the right to stop work in the building and does A have the right to ignore B’s changes in the plans?
5. What action A should take to make B accept the plans and drawings and to finish the work?
6. In your conclusion, you should provide a good solution for A and B to continue to work together without going to litigation.

Castle, Inc., has no debt outstanding and a total market value of $240,000. Earnings before interest and taxes, EBIT, are projected to be $28,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 percent higher. If there is a recession, then EBIT will be 25 percent lower. The firm is considering a debt issue of $140,000 with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 12,000 shares outstanding. Ignore taxes for this problem.

a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to the nearest whole number, e.g., 32.)

b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Janet Jennings is the general manager for Mercashoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the existing fixed costs. In addition, Janet is proposing a 5% price decrease ($40 to $38) that will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Janet’s ideas but concerned about the effects theses changes will have on the break-even point and the margin of safety.

Information provided:

A. Rental expenses for the store: $5,000 per month.

B. Janet has a salary assigned of $60,000 per year.

C. The store has a sales manager who earns $45,000 per year.

D. There are three salesclerks who have a salary assigned of $25,000 each per year.

E. Social security expenses for each the employees represent 30% of their salary.

F. Utilities expense: $600 per month.

Instructions:

1. Compute the current break-even point in units and compare it to the break-even point in units if Janet’s ideas are implemented.

2. Compute the contribution margin ratio under current operations and after Janet’s changes are introduced. (Round to the nearest full percent).

3. Compute the margin of safety under the two proposals.

4. What is the operating income under each scenario?

5. Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after Janet’s changes are introduced.

6. Prepare a Cost-Volume-Profit graph under the two scenarios.

7. Prepare a report explaining and justifying whether Janet’s changes should be adopted or not and provide suggestions supported by the information provided above. Show your work in Word of Excel

Case 1 – Cost-Volume-Profit Analysis

Janet Jennings is the general manager for Mercashoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the existing fixed costs. In addition, Janet is proposing a 5% price decrease ($40 to $38) that will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Janet’s ideas but concerned about the effects theses changes will have on the break-even point and the margin of safety.

Information provided:

A. Rental expenses for the store: $5,000 per month.

B. Janet has a salary assigned of $60,000 per year.

C. The store has a sales manager who earns $45,000 per year.

D. There are three salesclerks who have a salary assigned of $25,000 each per year.

E. Social security expenses for each the employees represent 30% of their salary.

F. Utilities expense: $600 per month.

Instructions:

1. Compute the current break-even point in units and compare it to the break-even point in units if Janet’s ideas are implemented.

2. Compute the contribution margin ratio under current operations and after Janet’s changes are introduced. (Round to the nearest full percent).

3. Compute the margin of safety under the two proposals.

4. What is the operating income under each scenario?

5. Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after Janet’s changes are introduced.

6. Prepare a Cost-Volume-Profit graph under the two scenarios.

7. Prepare a report explaining and justifying whether Janet’s changes should be adopted or not and provide suggestions supported by the information provided above. Show your work in Word of Excel

The College of Business has been having trouble with errors on student admittance records and you have been asked to investigate the cause of the problem. A form is considered defective if it has one or more errors. You think you have found one of the main reasons for the errors but in order to prove it, you decide to develop a process control chart to follow the current process for a few days. On the next three days, you collect 15 samples of 25 forms each and observe the following number of forms with errors on them:

A.) Develop the appropriate process control chart(s) using 3 sigma control limits.

B.) You follow the process for two more days, obtain results similar to that shown above, and correct any special causes that may exist. In an effort to improve the process, you make some changes and after the changes are made, collect five more samples of 25 forms each. The number of defects found is shown below:

**Plot and label these five observations on the same control chart(s) developed in part A. What comments can be made about the process now? Should any changes be made to the old control chart(s) given the new evidence? If so, describe the changes that should be made and explain why. If not, explain why not?**

Problem 5-5A a-c (Video)

Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the $270,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Mary’s ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

Compute the current break-even point in units, and compare it to the break-even point in units if Mary’s ideas are used.

Current break-even point pairs of shoes

New break-even point pairs of shoes

Compute the margin of safety ratio for current operations and after Mary’s changes are introduced. (Round answers to 0 decimal places, e.g. 15%.)

Current margin of safety ratio %

New margin of safety ratio %

Prepare a CVP income statement for current operations and after Mary’s changes are introduced.

BARGAIN SHOE STORE
CVP Income Statement

Current

New

Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses

$

$

Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses

Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses

Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses

Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses

$

$

Would you make the changes suggested?

• swapArrayEnds(int[] nums): swaps the first and last elements of its array parameter. Ex: {10, 20, 30, 40} becomes {40, 20, 30, 10}.
• removeTen(int[] nums): returns a version of the given array where all the 10's have been removed. The remaining elements should shift left towards the start of the array as needed, and the empty spaces at the end of the array should be set to 0. Ex: {1, 10, 10, 2} yields {1, 2, 0, 0}. You can make a new array and return the new array.

Note that swapArrayEnds() does not need to return the result, as it makes changes to the array referenced by the parameter, which is the same array reference by the argument. On the other hand, removeTen() does not direct make changes to the array, but creates a new array, which requires to be made.

• Java passes parameter by value, a method cannot change the actual argument. However, a method can make changes to the object that is referenced by the argument.
• If a method changes the array's contents, the method usually has a void return type.
• If the method does not change the array's contents, but create a new array, then the method needs to return the newly created array.

public class RemoveTen {
public static void main(String[] args) {
int[] nums = {1, 10, 10, 2};
  
swapArrayEnds(nums);

for(int i = 0; i < nums.length; i++)
System.out.print(nums[i] + " ");

int[] result = removeTen(nums);
  
for(int i = 0; i < result.length; i++)
System.out.print(result[i] + " ");
System.out.println();

for(int i = 0; i < nums.length; i++)
System.out.print(nums[i] + " ");
System.out.println();
}

public static void swapArrayEnds(int[] nums) {
/*FIXME Complete the implementation of the swapArrayEnds method*/
  
}

public static int[] removeTen(int[] nums) {
/*FIXME Complete the implementation of the removeTen method*/
  
}

  
}

Read the online news article on SA’s “rand and interest rate” below and answer questions 2(a), (2b) and 3.

Where are the rand and interest rates headed? Apr 12 2018 07:39 Mariam Isa

The ousting of former President Jacob Zuma at the start of this year and the swift action taken by his successor, Cyril Ramaphosa, to root out corruption and address government mismanagement sparked a surge in business confidence, which has significantly improved South Africa’s growth outlook.
But the dramatic turnaround in sentiment has yet to translate into the reforms needed to generate enough private investment to make significant inroads into unemployment, restore social cohesion and put the economy on a sustainable path of much faster growth.
The decision by Moody’s Investors Service to keep the country’s sovereign credit rating at investment grade and change the outlook on its assessment to stable from negative has removed the threat of a foreign sell-off in government bonds, boosting the rand and prompting a welcome interest rate cut by the Reserve Bank.
But minister of Finance Nhlanhla Nene has cautioned against the groundswell of euphoria.
“I would want to call this a honeymoon phase, and it is for that reason we cannot be complacent about it […] We do need to take our agenda forward,” he said in an interview on the radio station 702 on 26 March.
Standard & Poor’s made that point in a report released the following day, even though it doubled its growth forecast for the country this year to 2% – well above the Reserve Bank’s latest forecast – and boosted its estimate for next year to 2.1% from 1.7%.
The rating agency questioned how quickly reform efforts would ease the structural constraints to economic growth – notably labour and product-market inefficiencies, poor education outcomes and a skills shortage.
Nonetheless, the rating agency said it no longer saw SA as among the “fragile five” emerging markets, which would be most vulnerable to higher interest rates in developed economies.

Reserve Bank Governor, Lesetja Kganyago was also circumspect when he announced the monetary policy committee’s (MPC’s) decision on 28 March to trim its key repo rate to 6.5%, warning that while the growth outlook was more positive, it was “still challenging”, as it was driven mainly by increased confidence.
He also noted that the rand, which had appreciated by 4.8% to the dollar in the past two months, was “somewhat overvalued” and further strengthening potential was probably limited.
He told reporters after the announcement that there had been “heated debate” over the decision to cut the repo rate, with four members of the MPC arguing for the step and three in favour of holding it steady.
That means further interest rate cuts are unlikely this year, and there could even be hikes in 2019, which will dampen business and consumer optimism.
“The private sector underinvested for the last three years,” said Stanlib Chief Economist Kevin Lings.
“Because the currency is strong, this is a good time to upgrade machines – there is restocking of inventory levels across most sectors.
“What we are not hearing is significant expansion plans. The government balance sheet prevents it from stimulating the economy – it has to come from the private sector.”
Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent for Reuters news agency after working in the Middle East, the UK and Sweden, covering topics ranging from war to oil, as well as politics and economics. She joined Business Day as economics editor in 2007 and left in 2014 to write on a wider range of subjects for several publications in SA and in the UK.
This article is part of the cover story that originally appeared in the 12 April edition of finweek.

Question 2              [30 Marks]

a) The article outlines the motivations and actions predicted for the South African Reserve Bank (SARB) when they make a decision of increasing or decreasing “interest rates”. Discuss the monetary transmission mechanism when the Reserve Bank DECREASES the Repurchase (repo) rate.           [15 Marks]




b) In the article, The SARB Governor highlighted two major macroeconomic variables affecting the economy, which are, exchange rate and interest rate. Critically review how the recent macroeconomic policy change (interest rate and exchange rate) has affected a particular enterprise or business unit of your choice? Your answer must start by explaining the nature of business or sector of the company/organisation, followed by a critical review of the impact of exchange rate and interest rate changes on the business/organisation.            [15 Marks]


Question 3              [20 Marks]

The author, in her/his conclusion, highlighted the challenges facing the economy in a statement: “What we are not hearing is significant expansion plans. The government balance sheet prevents it from stimulating the economy – it has to come from the private sector.”

As an economist, you have been tasked to explain to a business forum how investment can be used to expand the economy. In your presentation, critically review four factors directly linked to investment and how this causes a shift in aggregate demand (AD) curve.     [20 Marks]

(1 mark for each identified factor 4 marks for explaining each factor).