UCT CON Module 7 Unit 1 Enrichment activity

Learning outcome:

LO1: Recognise the relationship between project planning and cash flow management.

Question 1
Busani has asked you for advice about whether he should accept a R1,000,000 project. He
has given you the project cost and income information in Table 1. Use this information to
complete the cash flow.

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Table 1: Busani’s cash flow for a 6-month contract of R1,000,000.

A B C D E

Month Milestone Project Project income Where Where Income is Cumulative Net
expenditure cash cash flow forecast Expenditure is higher than cash flow
flow forecast higher than expenditure
income
Note: All figures in
brackets express
expenditure

June Project start (R80,000) -

July First payment (R120,000) R100,000

August Second payment (R200,000) R150,000

September Third payment (R200,000) R180,000

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 October Fourth payment (R140,000) R300,000

November Fifth payment

(Practical
completion) (R60,000) R170,000

3 months later Final payment R100,000

Total

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Question 2
Use the information in the cash flow to write Busani a brief recommendation on whether to
accept the project. There are two important things that he is concerned about:

1. In June, the maximum amount Busani will have access to in terms of working capital
is R90,000.
2. Busani has already committed to another project in September and cannot provide
any further capital to this project from August.

In your recommendation, refer to Busani’s expected profits, the capital reserves required,
months that have higher costs than incomes, and the point at which the project will be self-
financing.

Start writing here:

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