FACULTY OF THE BUILT ENVIRONMENT, ARTS AND SCIENCES

DEPARTMENT OF LANDSCAPE ARCHITECTURE AND QUANTITY

SURVEYING
BACHELOR OF SCIENCE IN QUANTITY SURVEYING
CONSTRUCTION FINANCE – (BQS 4106)
ASSIGNMENT 1&2

Keemenao Tathego
Student ID:01151367412
Lecturer:Mr Njanji
Submitted:30/10/20
Assignment 1

a) Calculate the payback period in years and months

Solution

Depreciation = 2 300,000-100,000/5

= 440 000,00

Initial Investment = 2 300,000+300,000

= P2 600, 000.00

Cashflows
Year 1 600,000 + 440 000,00 1 040 000,00
Year 2 800,000 + 440 000,00 1 240 00,00
Year 3 1000,000 + 440 000,00 1 440 00,00
Year 4 1200,000 + 440 000,00 1 640 00,00
Year 5 800,000 + 440 000,00 1 240 000,00

Year Cashflows Cumulative cashflows

0 {2 600 000.00} {2 600 00.00}

1 1 040 000,00 {1 560 000.00}
2 1 240 000,00 {320 000.00}
3 1 440 000,00
4 1 640 000,00
5 1 240 000,00

PAYBACK PERIOD = 2 years + {320 000.00/1 440 000.00} *12

=2years 3months
B).Calculate the NPV of the Project

Year Net cash Flows Disc factor {10%} NPV

0 {2 600 000} {2 600 000}

1 1 040 000,00 0.9090909091 945 454.545464
2 1 240 000,00 0.826446281 1 024 793.38844
3 1 440 000,00 0.7513148009 1 081 893.313296
4 1 640 000,00 0.6830134554 1 120 142.066856
5 1 240 000,00 0.6209213231 769 942. 440644
TOTAL + 6 600 000.00 +3 996 771.209236

*NPV is positive, therefore the project is accepted and the:

– Project is expected to add value to the firm

– Will increase the wealth of the owners

B. Prepare a Production Budget for each month for the six months period ending 31 December
2019.

Particulars July August Septembe October November December

r
A Sales units 11 000 11 000 17 000 19 000 25 000 23 000
(forecasting)
B Adding closing
stock of finished 5 500 8 500 9 500 12 500 11 500 10 000
goods ( half of
next month)
C Total production
(A+B) 16 500 19 500 26 500 31 500 36 500 33 000

D Less opening
stock of finished 5 500 5 500 8 500 9 500 12 500 11 500
goods.
E Production Budget
units.( C –D) 11 000 14 000 18 000 22 000 24 000 21 500
Total production
Budget units. 110 500 Units
Production Estimate = Expected Sales + Desired Closing Stock –Estimated Opening Stock

Production Cost Budget from (July to December 2020)

Particulars Unit Amount Units Amount Total

Direct materials
cost 100 110 500 11 050 000
Direct wages 40 110 500 4 420 000
Factory overhead
(88 000 / 22 000)*110 40 110 500 4 420 000
500
Total Production Cost P 19 890 000

C). State any two (2) drawbacks of using the NPV method.
Fails to consider cash flows that
occur after payback period cut-off
date
- Biased against projects that have
longer development periods
- Ignores time value of mone
Fails to consider cash flows that
occur after payback period cut-off
date
- Biased against projects that have
longer development periods
- Ignores time value of money
 Fails to consider cash flows that occur after payback period cut-off date
 Biased against projects that have longer development period