Astra Limited manufactures nuts and bolts, which are sold to industrial users. The financial statements for 2016 and 2017 are as follows: Income statements for the year ended 31 st December...

1. Astra Limited manufactures nuts and bolts, which are sold to industrial users. The financial statements for 2016 and 2017 are as follows:

Income statements for the year ended 31
st

December


2016 2017
Retained profit c/forward 525 247
£000 £000 Revenue 1,180 1,200
Cost of sales
Gross profit
Operating expenses
Depreciation (66) (75) Operating profit 234 167 Interest (-) (8) Profit before taxation 234 159 Taxation (80) (48) Profit for the year 154 111
(680) (750) 500 450 (200) (208)

Statements of financial position as at 31
st

December



ASSETS
non-current assets

Property, plant and equipment

Current assets

Inventories
Trade receivables
Cash 34

Total assets
EQUITY AND LIABILITIES
Equity

Ordinary share capital (£1 shares, fully paid) Retained earnings

Non-current liabilities


Borrowing - bank loan

Current liabilities


Trade payables
Other payables and accruals
Taxation
Short-term borrowings (all bank overdraft)

Total equity and liabilities


253 396 955 1,083
500 500 256 295 756 795
- 50
60 76 18 16 40 24 81 122
199 238 955 1,083
Dividends were paid on ordinary shares of £70,000 and £72,000 in respect of 2016 and 2017 respectively.
• Where there is no Purchases, please use Cost of sales.
a) Calculate the following ratios for both 2016 and 2017 (using year-end figures for statement of financial position items):

• Return on capital employed


• Operating profit


• Current ratio


• Settlement period for trade receivables
  


• Settlement period for trade payables
  


• Inventories turnover period

2016 2017 £000 £000
702 687
148 236 102 156
b) Comment on the performance of Astra Limited from the viewpoint of a business considering supplying a substantial amount of goods to Astra Limited on usual trade credit terms.

1. Jerry’s Biscuit Company is a successful biscuit manufacturer. Since it was established five years ago it has gradually increased its range of plain and cheese biscuits. The sales director has now come to the board with a proposal to expand the range further into chocolate coated biscuits. This will involve the purchase of new machinery; the initial outlay will be £145 000. The finance director and the sales director meet to discuss sales projections for the new range of chocolate biscuits. They forecast the following net cash inflows over the five year period until the machinery will need to be replaced:

£ Year 1 33,000 Year 2 44,000 Year 3 50,000 Year 4 51,000 Year 5 56,000
In addition to these inflows, it is expected that the machinery will be sold for scrap at the end of year five for £12 000.

1. a) Calculate the payback period for the project.
   


2. b) Calculate the accounting rate of return (ARR) for the project.


3. c) Calculate the net present value (NPV) for the project, assuming 10% rate.


4. d) Discuss the results and their potential impact on Jerry’s Biscuit Company