Certificate in Advanced Business Calculations

ASE3003

Level 3

Thursday 21 November 2013

Time allowed: 3 hours

Information

 There are 8 questions in this examination.

 Total marks available: 100

Instructions

 Do not open this paper until you are told to do so by the supervisor.

 Answer all questions.

 Write your answers in blue or black ink/ballpoint. You can only use a pencil for graphs, charts,
diagrams, etc.

 Please ensure your answers are written clearly.

 Begin your answer to each question on a new page.

 All answers must be correctly numbered but need not be in numerical order.

 Workings must be shown.

 You can use mathematical and statistical tables.

 You 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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Question 1

A bank successfully tenders £1,976,000 for a £2,000,000 Treasury bill that runs for three months and is
to be redeemed at par.

(a) Calculate the rate of simple interest per annum received on the investment in the Treasury bill.
(4 marks)

The bank tenders £4,650,000 for a £5,000,000 Treasury bill that runs for two years and is due to be
redeemed at par.

(b) Calculate:

(i) the overall percentage interest received on the two-year investment in the Treasury bill
(2 marks)
(ii) the rate of compound interest per annum that this represents.
(3 marks)

The bank buys a €2,500,000 Treasury bill for €2,250,000. One year later, following a bail out agreement,
the bank redeems the bill for €1,800,000.

(c) Express the loss as a percentage of the investment.

(2 marks)

(Total 11 marks)

Question 2

Steve purchased units in a unit trust with an offer price of £400 per unit, and sold the units after three
years at £451 per unit.

(a) Express the increase in price of the units as a percentage increase per annum, based on simple
interest.
(2 marks)

Steve bought 1,750 units in another unit trust and sold them later at £42.80 each, the total amount
received being £8,400 more than he bought them for.

(b) Calculate the original amount that Steve paid per unit.
(2 marks)

Steve purchased 25,000 3½% preference shares (nominal value £5 per share) at £7.77 per share.

(c) Calculate:

(i) the total cost of the shares

(2 marks)
(ii) the dividend received by Steve each year
(2 marks)
(iii) his annual dividend as a percentage of the cost of investment.
(2 marks)

£100 of government stock can be bought for £88. Steve bought government stock and found that the
nominal value was £28,800 more than the amount he paid for it.

(d) Calculate how much Steve paid for the stock.

(3 marks)

(Total 13 marks)

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Question 3

Manufacturer A sells product P at £66 per unit of product.

Manufacturing costs are as follows:

Fixed cost per period £1,955,000

Variable cost per unit of product £49

(a) Calculate:

(i) the profit or loss at an output of 150,000 units of product per period
(4 marks)
(ii) the break-even point in units of product per period.
(3 marks)

During a sales period, manufacturer A makes and sells 65,000 units of product Q.
During this period:

the fixed costs of distribution are £78,000 per period

the variable costs of distribution are £4.90 per unit of product.

(b) Calculate the total cost of distribution per unit of product during this period.
(2 marks)

In another period, manufacturer A makes and sells 125,000 units of product R at a selling price of
£27.50, and makes a profit of £126,150.
The variable costs are £18.80 per unit of product R.

(c) Calculate the break-even point in units of product per period.

(3 marks)

(Total 12 marks)

Question 4

The following information relates to business B in the most recent financial year:

£
Overheads 42,357
Turnover (Net sales) 299,250
Capital 420,900
Gross profit 71,820
Stock at start of year 17,000
Stock at end of year 14,500

Calculate:

(a) the gross profit percentage on turnover

(2 marks)

(b) the percentage return on capital employed

(3 marks)

(c) the average stock held

(2 marks)

(d) the annual rate of stockturn

(3 marks)

(e) the average number of weeks that items remain in stock.

(2 marks)

(Total 12 marks)

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Question 5

A business owner has a choice of two investment projects.

The estimated life of each project is five years.

Further information is as follows:

Project One Project Two

£ £
Initial cost 1,000,000 1,700,000

Repair and maintenance costs per annum 120,000 200,000

Revenue returns Year 1 200,000 250,000

Year 2 350,000 750,000
Year 3 500,000 750,000
Year 4 500,000 750,000
Year 5 250,000 500,000

(a) Calculate the average rate of return for each project.

(7 marks)

The owner estimates the following figures for Investment Project P:

£
Cost (year 0) 2,000,000
Year 1 Net cash inflow 400,000
Year 2 Net cash inflow 750,000
Year 3 Net cash inflow 750,000
Year 4 Net cash inflow 500,000

(b) Using the following table of discounting factors, calculate the net present value for Project P.

Discounting factor

Year 1 0.901
Year 2 0.812
Year 3 0.731
Year 4 0.659
(4 marks)

(c) Calculate the percentage rate of return per annum represented by this table.
(2 marks)

(Total 13 marks)

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Question 6

In bankruptcy A, unsecured creditors receive £0.40 in the pound.

A lender is owed £250,000, of which 30% is secured against assets.

(a) Calculate:

(i) the amount received by the lender as a secured creditor

(2 marks)
(ii) the amount received by the lender as an unsecured creditor.
(3 marks)

In bankruptcy B:

the total liabilities are £820,000

the amount owed to secured creditors is £395,000
an unsecured creditor who is owed £60,000 receives £21,000
the expenses of winding up the business are £11,250.

(b) Calculate:

(i) the rate in the pound payable to unsecured creditors

(2 marks)
(ii) how much is owed to unsecured creditors
(2 marks)
(iii) the total assets realised.
(2 marks)

Lucy is owed £44,000 as an unsecured creditor in bankruptcy C, which pays £0.17 in the pound to
unsecured creditors.
She is also owed £76,700 in bankruptcy D, as the sole secured creditor.
The total assets of D, after winding up expenses, realised £28,500.

(c) Calculate how much Lucy receives in total.

(2 marks)

(Total 13 marks)

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Question 7

Machine A costs £195,000 and is estimated to have a life of four years and a scrap value of £15,000. It is
depreciated by the equal instalment method.

(a) (i) Calculate the annual depreciation.

(2 marks)

(ii) Prepare a depreciation schedule for years 0 to 4 that shows:

the annual depreciation

the accumulated depreciation
the book value at the end of each year.
(4 marks)

Machine B is depreciated by the reducing balance (diminishing balance) method.

The depreciation schedule for the first three years is as follows:

Annual Accumulated Book value

depreciation depreciation at end of year
£ £ £
Year 0 (Initial cost) ?
Year 1 72,000 ? ?
Year 2 39,600 111,600 48,400
Year 3 21,780 133,380 26,620

(b) Calculate:

(i) the accumulated depreciation in year 1

(1 mark)
(ii) the book value at the end of year 1
(2 marks)
(iii) the initial cost of machine B
(2 marks)
(iv) the annual rate of depreciation.
(2 marks)

(Total 13 marks)

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Question 8

An index of prices at January 2013, based on January 2000 = 100, is shown below:

Weight Index

Item A 119 165

Item B 97 147
Item C 84 99

(a) (i) Calculate the weighted index for the three items taken together.
(5 marks)
(ii) Explain what the index of 165 for item A represents.
(2 marks)

A chain base index of production, starting from the year 2009, has the following values:

Year 2009 2010 2011 2012

Index 100 110 105 88

(b) (i) State in which year production was greatest.

(1 mark)
(ii) Express the production in 2011 as a quantity relative, based on year 2009 = 1.
(2 marks)
(iii) Calculate the percentage increase or decrease in production from 2010 to 2012.
(2 marks)
(iv) State in which of the four years production was least.
(1 mark)

(Total 13 marks)

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