Series 4 Examination 2008

CERTIFICATE IN ADVANCED BUSINESS CALCULATIONS

Level 3
Wednesday 19 November
Subject Code: 3003
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.

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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Page 1 of 6

ASE 3003 4 08 1

QUESTION 1
Rajesh deposits 15,000 in a bank account at 4% per annum simple interest.
(a) How much interest will Rajesh have earned after 3 years and 56 days?
(4 marks)

Rajesh deposits a further 15,000 in another account at 4% per annum compound interest, for the
same period. Interest is added annually and at the end of the period, and is calculated as compound
interest throughout.
(b) How much more interest will Rajesh have earned from this account than from the simple interest
account?
(6 marks)
(Total 10 marks)

QUESTION 2
Amanda buys shares in three companies and later receives a dividend from each. She tabulates the
figures as follows:
Number of shares
Nominal value of one share
Buying price per share
Brokers commission
Total cost of shares, including commission
Dividend (percentage of nominal value)
Dividend ()

Company A
3,000
5
11.72
30
?
6%
?

Company B
12,000
?
3.71
?
44,545
9.8%
588

Company C
?
5
232p
40
58,040
?
1,750

Supply the missing figures.

(Total 12 marks)

QUESTION 3
An industrial product may be manufactured by two methods of production.
Using Method One, fixed costs are 7,770,000 per period and variable costs are 208 per unit.
Using Method Two, fixed costs are 8,750,000 per period and variable costs are 180 per unit.

(a) Calculate the level of output per period for which the total costs are the same.
(4 marks)

(b) State the total cost per period for Method One and Method Two at this output.
(2 marks)

(c) Using the information provided and your answer to (a) above, state which of the two methods of
production will be cheaper for an output of 50,000 units per period. Explain your answer.
(2 marks)

Method Two is chosen for production, and the product is sold at 250 per unit.
(d) Calculate the total income from sales at break-even.
(4 marks)
(Total 12 marks)

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QUESTION 4
At the end of the year 2007 the current ratio for Company P was 3.2 : 1.
Its current liabilities were 4,750,000.
(a) Calculate the current assets for Company P at that time.
(2 marks)
At the end of the same year, 2007, Company P had an acid test ratio of 3.0 : 1.
(b) Calculate the stock held by Company P at that time.
(3 marks)
(c) State whether you think the liquidity of Company P was healthy or not. Explain your answer.
(3 marks)

In the previous year, 2006, the rate of stockturn for Company P was 12. At the start of that year the
company held stock to the value of 180,000, and at the end of that year the value of stock held
was 150,000.
(d) Calculate the net purchases of Company P for that year.
(4 marks)
The actual purchases for Company P during 2006 were 2,175,000.
(e) Calculate the difference between this and your answer to (d), and say what this difference
represents.
(3 marks)
(Total 15 marks)

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QUESTION 5
A business owner has a choice of 2 investment projects.
The estimated costs and returns are as follows:

Project One

Project Two

Cost
Year 1 Net cash inflow/(outflow)

2,500,000
500,000

2,000,000
(250,000)

Year 2 Net cash inflow

Year 3 Net cash inflow
Year 4 Net cash inflow

1,200,000
1,200,000
600,000

1,500,000
1,500,000
150,000

(a) For Project Two calculate the payback period. Give your answer in years and months.
(3 marks)

The payback period for Project One is 2 years 8 months.

(b) On the basis of payback, advise the business owner which project is the better investment.
Give a reason.
(2 marks)
The business owner requires that the project chosen must earn a return of at least 15%.
(c) Using a discount factor of 15%, and the following table, calculate the net present value for
Project Two.
Discounting factor
Year 1
Year 2
Year 3
Year 4

15%
0.870
0.756
0.658
0.572
(5 marks)

Using the same discount factor, Project One has a negative net present value of 25,000.
(d) Advise the business owner further, with reasons.
(2 marks)

(e) A business advisor calculates that the internal rate of return for Project One is 15.2%.
Without carrying out further calculations, comment on the advisors figure.
(2 marks)
(Total 14 marks)

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QUESTION 6
The following information relates to the business of a bankrupt trader.
Cash in hand
Creditors
Machinery
Bank overdraft
Trade debtors
Stock
Office equipment
Vehicles
Total assets

105
?
11,500
25,300
6,090
16,420
?
17,000
59,140

Total liabilities

97,500

(a) Calculate the value of her office equipment and the amount owed to creditors.
(4 marks)
The assets were realised in full at their book values, listed above.
Creditors include 3,700, which, together with the bank overdraft, are secured. Hence, 29,000 of the
liabilities, made up of the bank overdraft and other secured creditors, 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 13,420.
(2 marks)
(Total 10 marks)

QUESTION 7
A factory machine that costs 350,000 is estimated to have a life of 5 years and a scrap value of
25,000.
(a) Using the equal instalment method, prepare a depreciation schedule that shows, for each year,
the annual depreciation, the accumulated depreciation and the book value at the end of each
year.
(6 marks)
(b) Using the diminishing balance method of depreciation, calculate:
(i)

the annual rate of depreciation

(4 marks)

(ii) the depreciation in the first year

(iii) the book value after 3 years
(iv) the accumulated depreciation after 3 years.

(2 marks)
(2 marks)
(1 mark)
(Total 15 marks)

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QUESTION 8
(a) An index of retail prices at January 2008 is shown below:
Group
Food

Weight
150

Housing
Fuel and light
Durable household goods
Clothing and footwear
Transport

321
82
199
63
185

Index (Jan 2000 = 100)

134.1
187.8
171.5
115.6
94.3
127.1

A statistician calculates the weighted index for the above table to be 146.9
She wishes to know the effect of the increase in food costs on the index.
(i)

Calculate the weighted index for the above items that are not Food.
(5 marks)

(ii) Comment in percentage terms on the change in non-food retail prices in the period from
January 2000 to January 2008.
(3 marks)
(iii) Comment on any difference between your figure and the statisticians weighted figure above. (2
marks)

(b) An index of industrial production is shown below

2006 (2000 =100)
125

2007 (2006=100)
104

Calculate the index of industrial production for 2007 with 2000 = 100
(2 marks)
(Total 12 marks)

3003/4/08

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