3703/4/10 Page 1 of 6 ASE 3703 4 10 4

Series 4 Examination 2010

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.

CERTIFICATE IN ADVANCED BUSINESS CALCULATIONS (S)

Level 3

Thursday 2 December

Subject code: 3703

Time allowed: 3 hours

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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) the likely par value of the bill (4 marks)

(ii) the interest for a period of 6 months on $98,400 at 3.25% compound interest per annum.

(4 marks)

(Total 13 marks) QUESTION 2 Anya purchased units in a unit trust with an offer price of $140 per unit, and sold the units after 3½ 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 2½% preference shares (nominal value $5) at $9.03. Calculate: (c) the total cost of the shares. (2 marks) (d) the dividend received each year. (2 marks) $100 of 2¼% 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) the nominal value of the stock bought by the bank (2 marks) (f) the total interest received over this period. (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) the level of output per period for which the total costs are the same (3 marks) (ii) the break even point in units per period for method Q. (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 retailer’s business at the end of the first year of trading: $

Annual sales 175,000 Annual purchases 79,140 Sales returns 3,750 Purchases returns 2,455 Initial stock value 11,000 Final stock value 13,020 General expenses 5,260 Postage 980 Telephone 1,220 Advertising 8,390 Van expenses 6,070 Calculate: (a) the cost of goods sold

(3 marks) (b) gross profit as a percentage of net sales

(3 marks) (c) overhead expenses as a percentage of net sales

(2 marks) (d) the average length of time that items remained in stock, giving your answer in days

(3 marks) (e) the difference between gross profit and overhead expenses.

(1 mark) (f) State what the answer to (e) represents.

(1 mark)

(Total 13 marks)

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QUESTION 5 (a) The net present value of investment project P at two discount rates is as follows: Discount rate 8% 11% Net present value $115,500 ($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 Project Y Cost 5,800,000 5,400,000 Year 1 cash inflow 1,000,000 300,000 Year 2 cash inflow 1,800,000 3,300,000 Year 3 cash inflow 3,000,000 3,600,000 Year 4 cash inflow 2,000,000 1,200,000

(i) 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 217 Trade creditors 36,260 Machinery 8,500 Bank overdraft 11,000 Trade debtors 6,614 Value of stock 3,500 Value of office equipment 2,750 Value of vehicles 3,800 (a) Calculate the trader’s total assets and total liabilities.

(4 marks) $13,600 of the liabilities must be paid first and in full. Calculate: (b) the rate in the $ that an unsecured creditor will receive.

(4 marks) (c) the amount owed to an unsecured creditor who receives $2,940.

(2 marks) (d) 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) The amount of depreciation each year.

(2 marks) (ii) The book value after 4 years.

(2 marks) (iii) 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) The amount of depreciation in the first year.

(2 marks) (ii) The book value after 4 years.

(2 marks) (iii) 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 Weight Index Weight x Index Food 160 186.7 29,872.0 Housing Figures missing Fuel and light 97 201.2 19,516.4 Durable household goods 192 134.8 25,881.6 Clothing and footwear 57 85.0 4,845.0 Transport 190 141.1 26.809.0 1,000 154,196.0 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) the missing figures for Housing

(4 marks) (b) the weighted index for the above items that are not Food

(4 marks) (c) 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)