Series 4 Examination 2010

CERTIFICATE IN ADVANCED BUSINESS CALCULATIONS (S)

Level 3 Thursday 2 December Subject code: 3703 Time allowed: 3 hours

INSTRUCTIONS FOR CANDIDATES Answer all 8 questions. Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams, etc. All answers must be correctly numbered but need not be in numerical order. Working must be shown You must show all calculations, where applicable on the answer paper provided. You may use mathematical and statistical tables. Your work should be accurate and neat. Your may use a calculator provided the calculator gives no printout, has no word display facilities, is silent and cordless. The provision of batteries and their condition is your responsibility.

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ASE 3703 4 10 4

QUESTION 1 (a) Bank A successfully tenders $245,000 for a $250,000 Treasury bill that runs for 10 months and is to be redeemed at par. Calculate the rate of simple interest paid on the Treasury bill, to three figure accuracy. (5 marks) (b) Bank B tenders $98,400 for a Treasury bill that runs for 6 months and is to be redeemed at par. The bank estimates that the simple interest will be equivalent to a rate of 3.25% per annum. Calculate: (i) (ii) the likely par value of the bill the interest for a period of 6 months on $98,400 at 3.25% compound interest per annum. (4 marks) (Total 13 marks) (4 marks)

QUESTION 2 Anya purchased units in a unit trust with an offer price of $140 per unit, and sold the units after 3 years at $175 per unit. (a) Express the increase in price of the units as a percentage increase per annum, based on simple interest. (2 marks)

Anya also bought 15,000 units in a unit trust and sold them later at $14.50 each, the total amount being $29,100 more than she bought them for. (b) Calculate the original amount paid per unit by Anya. (3 marks)

Devin purchased 130,000 2% preference shares (nominal value $5) at $9.03. Calculate: (c) (d) the total cost of the shares. the dividend received each year. (2 marks) (2 marks)

$100 of 2% Government Stock can be bought for $88. Interest is paid half yearly. A bank invested $154,000 in the stock. The bank held the stock for 3 years. Calculate: (e) (f) the nominal value of the stock bought by the bank the total interest received over this period. (2 marks) (2 marks) (Total 13 marks)

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QUESTION 3 An industrial product may be manufactured by two methods of production. Using Method P, fixed costs are $2,500,000 per period and variable costs are $255 per unit of product. Using Method Q, fixed costs are $1,900,000 per period and variable costs are $285 per unit of product. The manufacturer plans to sell the product at $365 per unit. (a) Calculate: (i) (ii) the level of output per period for which the total costs are the same the break even point in units per period for method Q. (3 marks) (3 marks)

The manufacturer chooses method P and predicts sales of 50,000 units per period. (b) Calculate how much more profit per period will be made using method P than method Q at this level of production and sales. (4 marks) (c) For production and sales per period of more than 50,000 units, state whether the difference in profit between the two methods will be greater or less than the answer to (b), and give a reason. (2 marks) (Total 12 marks)

QUESTION 4 The following information relates to a retailers business at the end of the first year of trading: $ Annual sales Annual purchases Sales returns Purchases returns Initial stock value Final stock value General expenses Postage Telephone Advertising Van expenses Calculate: (a) (b) (c) (d) (e) (f) the cost of goods sold (3 marks) gross profit as a percentage of net sales (3 marks) overhead expenses as a percentage of net sales (2 marks) the average length of time that items remained in stock, giving your answer in days (3 marks) the difference between gross profit and overhead expenses. (1 mark) State what the answer to (e) represents. (1 mark) (Total 13 marks) 175,000 79,140 3,750 2,455 11,000 13,020 5,260 980 1,220 8,390 6,070

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QUESTION 5 (a) The net present value of investment project P at two discount rates is as follows: Discount rate Net present value 8% $115,500 11% ($115,500)

Estimate the internal rate of return of project P. (2 marks) (b) A business owner has a choice of two investment projects. The estimated costs and returns are as follows (all figures are in $). Project X Cost Year 1 cash inflow Year 2 cash inflow Year 3 cash inflow Year 4 cash inflow (i) 5,800,000 1,000,000 1,800,000 3,000,000 2,000,000 Project Y 5,400,000 300,000 3,300,000 3,600,000 1,200,000

Calculate the payback period for each project in years and months and advise the owner. (6 marks)

(ii)

Calculate a revised payback period for Project Y on the basis that the cash inflow for the first 3 years is as shown but the cost is 10% more than the figure shown. (4 marks) (Total 12 marks)

QUESTION 6 The following information relates to the business of a bankrupt trader: $ Cash in hand Trade creditors Machinery Bank overdraft Trade debtors Value of stock Value of office equipment Value of vehicles (a) 217 36,260 8,500 11,000 6,614 3,500 2,750 3,800

Calculate the traders total assets and total liabilities. (4 marks) $13,600 of the liabilities must be paid first and in full.

Calculate: (b) (c) (d) the rate in the $ that an unsecured creditor will receive. (4 marks) the amount owed to an unsecured creditor who receives $2,940. (2 marks) the amount paid to a creditor who is owed $5,200, of which half is secured. (3 marks) (Total 13 marks)

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QUESTION 7 A factory machine that costs $5,200,000 is expected to have a life of 6 years. (a) Depreciation is first calculated on the basis of the equal instalment method. Using this method it is expected to depreciate each year by 16% of its original value. Calculate: (i) (ii) (iii) The amount of depreciation each year. (2 marks) The book value after 4 years. (2 marks) The total depreciation during the first 4 years. (2 marks) (b) Depreciation is then calculated on the basis of the diminishing balance method. Using this method, it is expected to depreciate each year by 41.5% of its value at the start of that year. Calculate: (i) (ii) (iii) The amount of depreciation in the first year. (2 marks) The book value after 4 years. (2 marks) The difference between the scrap values used in the two methods. (3 marks) (Total 13 marks)

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QUESTION 8 An index of retail prices at January 2009, based on January 2000 as 100, is shown below: Group Food Housing Fuel and light Durable household goods Clothing and footwear Transport Weight 160 97 192 57 190 1,000 Index 186.7 Figures missing 201.2 134.8 85.0 141.1 Weight x Index 29,872.0 19,516.4 25,881.6 4,845.0 26.809.0 154,196.0

The totals include the missing figures for Housing. A statistician calculates the weighted index for the above table to be 154.2 and wishes to know the effect of the increase in food costs on the index. Calculate: (a) (b) (c) the missing figures for Housing (4 marks) the weighted index for the above items that are not Food (4 marks) for Fuel and Light, the percentage increase from 2000 to 2009 (1 mark) (d) the percentage increase in the weighted index when Food is included compared to when it is not included. (2 marks) (Total 11 marks)

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