BUSI3001 MIDTERM (30%)

1. Super Trading Ltd is a company that sells motor spares. As at 31 December 2013 the company has
vehicles to the value of $150 000, a property to the value of $1 200 000 and a bank account with a
positive bank balance of $20 000. The entity has a long term loan with the bank of $560 000, and a
creditors (accounts payable) balance of $15 000. The value of stock is $32 000, and the debtors
balance is $15 000.
Taking the above information into account answer the following questions:

What was the total value of Assets for Super Trading Ltd as at 31 December 2013? (3 marks)

What was the total value of Liabilities for Super Trading Ltd as at 31 December 2013? (3 marks)

What was the value of Owners Equity as at 31 December 2013? (4 marks)

2. Using the information which follows, comment on whether the performance of ABC Ltd is better than
the industry for each ratio. (1 mark each)
Ratio

ABC Company Ltd

Industry average

Current ratio

106%

182%

Quick ratio

63%

110%

Total asset turnover

266%

392%

Debt ratio

78%

55%

Net profit margin

3%

4%

Return on total assets

8%

16%

Return on equity

36%

35%

Price/earnings ratio

520%

710%

Better/ Worse

3. Determine solutions for the following expressing your final answer to the nearest dollar.
a) At the beginning of each month an investor deposits $500 into an account which offers 12% p.a.
compound interest. What is the value of the investment at the end of 5 years months? (4 marks)
b) Susan invests $2,500 every quarter with the Unit Trust Corporations and will withdraw the lump sum in
10 years time. If the account earns interest at 6% p.a, how much will her lump sum be in 10 years if
she makes her first payment 3 months from now. (4 marks)

c) Peter wishes to purchase a motor vehicle from a dealer for $150,000. His bank, is prepared to lend him
the money on condition that he undertakes to repay the loan in installments at the end of every month
over a period of 36 months. If interest is to be charged at 10% p.a., what will be his monthly
installment? (6 marks)
d) Cecilia decided to extend her house by adding an extra bedroom. The extension will cost her $88,500.
The Bank has agreed to lend her 90% of this amount at a rate of 13.5% per annum. What will her
monthly payments be if the loan is to be paid over a period of 48 months? (6 marks)

4. Stocks X and Y have the following probability distribution of expected future returns:
Economy's State

Probability

Stock Xs Return

Stock Ys Return

Recession

0.1

6%

-5%

Bad

0.2

8%

0%

Moderate

0.4

10%

5%

Good

0.2

12%

15%

Upswing

0.1

14%

25%

a. Calculate the expected rates of return for Stock X and Stock Y (2 marks)
b. Calculate the standard deviations of expected returns for Stock X and Stock Y (5 marks)
c. Calculate the expected rate of return for a portfolio consisting of $50,000 on Stock X and $50,000 on
Stock Y (5 marks)
d. Calculate the standard deviation of expected returns for a portfolio consisting of $50,000 on Stock X
and $50,000 on Stock Y (10 marks)
e. If the correlation coefficient between stock X and stock Y is 0.809, should an investor invest in the
portfolio consisting of these two stocks? Explain why? (5 marks)