OPEN UNIVERSITY of MAURITIUS

Module Name: Fundamentals of Finance

Lecturers Name: Bye Pharad Kurreemun

INSTRUCTIONS TO STUDENTS- READ PROPERLY THE MODE OF

SUBMISSION
Your assignment will be marked on a total of 80 marks.
Answer question below
Submission date: 15 Oct
Please note that any assignment submitted after the deadline, marks will be deducted as per
assignment submission procedure document.
Word limit: NA. SHOW ALL CALCULATIONS
Format: Please follow the guidelines in the document Guide to writing assignments
available on Moodle.
You are required to conform to Harvard referencing style.
Plagiarism will be heavily penalised and may result to non-award of marks.
Please include a bibliography at the end of your document.
Mode of submission: Please submit a/one hard copy and address it to Mr Bye Pharad
Kurreemun and Programme Manager: Mrs Kheertee Ramsohok on the envelope and a soft
copy on: assign@open.ac.mu. Remember: assign@open.ac.mu is only a back-up.
POINTS TO REMEMBER WHEN SUBMITTING YOUR ASSIGNMENT:
All assignments submitted should include TRIPLICATE Form (available at

OUCC/Reduit)
Make sure you copy on assign@open.ac.mu when submitting hard and soft copy.
If you are submitting hard copy, please submit to our Learning Resource Centres {Reduit
(weekdays open) / Curepipe (Saturdays open)} -This is applicable to those who are not
submitting on the due dates and copy on assign@open.ac.mu
The Open University of Mauritius will not hold itself responsible or liable for the nonaward of marks if you fail to submit the assignment AS PER THE REQUIRED MODE
OF SUBMISSION. The hard copy should reach OU by the mentioned date.
You should keep your marked assignment until proclamation of results.

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THIS PAPER CONSISTS OF 15 QUESTIONS FOR A TOTAL OF 80 MARKS.

ALL QUESTIONS SHOULD BE ANSWERED

Question 1
Which of the following would not be classified as an asset?
A.
B.
C.
D.

Cash in hand
Money owed to use by customers
Money owed by us to a supplier
Premises
1 mark

Question 2
Which of the following groups of external users of financial statements need financial
information about a company to assess its ability to pay dividends in the future?
A.
B.
C.
D.

Investors and potential investors

Employees
Customers
The government
1 mark

Question 3
Which of the following statements are true?
(1) Accounting can be described as the recording and summarizing of transactions of a
financial nature.
(2) Companies are owned and managed by their shareholders.
A. 1 only
B. 2 only
C. Neither 1 nor 2
D. Both 1 and 2
2 marks
Question 4
Jack's sales follow a seasonal pattern. Monthly sales in the final quarter of the year are twice
as high as during other periods. He also benefits from a higher mark-up during the final
quarter: an average of 25% on cost compared with 20% during the rest of the year.
Jack's sales in 2015 totalled $210,000. What was the amount of his gross profit?
A.
B.
C.
D.

$36,750
$37,800
$39,667
$46,200
5 marks
2

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Question 5
From the following information regarding the year to 31 August 2016, what is the payables'
payment period?
$
Sales
43,000
Cost of sales
32,500
Opening inventory
6,000
Closing inventory
3,800
Payables at 31 August 2016 4,750
A.
B.
C.
D.

40 days
50 days
53 days
57 days
3 marks

Question 6
A company has the following details extracted from its statement of financial position:
$'000
Inventory
1,900
Receivables
1,000
Bank overdraft
100
Payables
1,000
Its liquidity position could be said to be
A. Very well-controlled because its current assets far outweigh its current liabilities
B. Poorly-controlled because its quick assets are less than its current liabilities
C. Poorly-controlled because its current ratio is significantly higher than the industry
norm of 1.8
D. Poorly-controlled because it has a bank overdraft
3 marks
Question 7
A company has determined that the net present value of an investment project is 12,304
when using a 10% discount rate and $(3,216) when using a discount rate of 15%.
Calculate the Internal Rate of Return of the project to the nearest 1%.
4 marks
Question 8
An investment company is considering the purchase of a commercial building at a cost of
0.85 m. The property would be rented immediately to tenants at an annual rent of 80,000
payable in arrears in perpetuity.
Calculate the net present value of the investment assuming that the investment companys
cost of capital is 8% per annum.
4 marks
3

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Question 9
A 3-year project is being evaluated using a discount rate of 5%. It is expected to have a cash
inflow of 60,000 at the end of its first year, 50,000 at the end of its 2nd year and 40,000 at
the end of its third year. What is the present value of the future cash flows if the discount
factors are: Year One 0.952, Year Two 0.907, Year Three 0.864?
A.
B.
C.
D.

137,030.
102,470.
57,120.
150,000.
4 marks

Question 10
The conversion of a future value into a present value requires:
A.
B.
C.
D.

the elimination of the accumulated compound interest from the future value.
the multiplication of the present value by a discount factor.
no adjustment, as they are both the same.
the addition of accumulated compound interest to the future value.
2 marks

Question 11
Which one of the following could be considered as a disadvantage of using the payback
period method of investment appraisal?
A. Cash flows arising after the payback period is reached are ignored.
B. It is easy to understand.
C. For risky projects, it is relevant to compare which ones will repay the initial
investment in the quickest time.
D. It is simple to calculate.
2 marks
Question 12
A company is evaluating two alternative projects, A and B, each of which will cost 80,000.
Project A is expected to generate 40,000 pa for 4 years and Project B is expected to generate
50,000 pa for 3 years. At the end of each project, assets will be sold for 12,000 relating to
Project A and 1,000 relating to Project B. The discount rate is 4% and relevant discount
factors are:
Year 1
Year 2
Year 3
Year 4

0.961
0.925
0.889
0.855

What is the net present value of each project?

A. Project A 46,540; Project B 52,461.
B. Project A 53,200; Project B 57,750.
C. Project A 68,000; Project B 69,000.
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D. Project A 54,940; Project B 57,861.
5 marks
Question 13
Four of the main users of financial accounting information are:
Shareholders
Lenders
The employees
The government
Explain how each of the above four users use financial accounting information to aid decision
making.
8 marks
Question 14
(a) Explain the meaning of the following financial ratios:
(i) Current ratio
(ii) Return on capital employed
(iii) Gross profit margin
6 marks
(b) Discuss two limitations of ratio analysis to users of the ratios.
4 marks
Question 15
The following information is available in respect of Amber Ltd and Potion Ltd for the year
ended 30 June 2016:
Amber Ltd Statement of Profit or Loss for the year ended 30 June 2016:
000s
10,914
8,415
2,499
1,453
1,046
314
732

Revenue
Cost of sales
Gross profit
Expenses
Net profit before tax
Tax
Net profit after tax

Amber Ltd Statement of Financial Position as at 30 June 2016:

000s

000s

Non-current assets
5

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Property, plant and equipment
Current assets
Inventory
Trade receivables
Bank
Total assets
Equity and liabilities
Ordinary shares
Retained earnings
5% Debentures
Current liabilities
Total equity and liabilities

2,430
1,239
1,440
510

3,189
5,619
600
1,830
1,380
1,809
5,619

Potion Ltd financial ratios for the year ended 30 June 2016:
Return on capital employed before tax
Sales to capital employed
Net profit before tax to sales
Current ratio
Acid test ratio
Trade receivables collection period
Inventory holding period
Return on equity after tax
Expenses as percentage of sales
Gross profit margin

22.6%
2.1
26.7%
1.8:1
0.7:1
53 days
58 days
14.3%
12.2%
41%

Required:
Using the information above, analyse the performance of Amber Ltd as compared to Potion
Ltd.
26 marks

END OF QUESTION PAPER