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Series 3 2008 (Code 3003)
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Advanced Business Calculations Level 3
Series 3 2008
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Page 1 of 17
Advanced Business Calculations Level 3
Series 3 2008
QUESTION 1
Chu has a number of investments. Each one is for a whole number of years. Each one earns
compound interest. He makes a table of his investments as follows, rounding figures to the nearest £.
Copy the table into your answer book and complete the table.
(Total 13 marks)
Page 2 of 17
MODEL ANSWER TO QUESTION 1
Investment B
Investment C
Investment D
Page 3 of 17
QUESTION 2
An investor bought 15,000 Ordinary Shares (nominal value £4.50) at 480 pence each. She paid a
broker’s commission of 0.25% of the nominal value.
(a) Calculate the total cost of the shares including commission. Give your answer in pounds.
(3 marks)
(b) Calculate the income from the sale, before commission. (2 marks)
For the sale, the investor pays a flat-rate broker’s commission of £80.
No dividend was paid for the first two years.
For the next two years, the dividends declared were:
Year 3 Year 4
3p per share 6.5p per share
For the fifth year the dividend amounted to 2% of the nominal value of the shares.
(c) Calculate the total profit made by the investor, including purchase, sale, dividends and
commissions. (5 marks)
(d) Express the total profit per annum as a percentage of the total cost of the shares. (2 marks)
(Total 12 marks)
Page 4 of 17
MODEL ANSWER TO QUESTION 2
(c) Dividend = {(3 + 6.5)p x 15,000} + {2% x 15,000 x £4.50} = £1,425 + £1,350 = £2,775
Page 5 of 17
QUESTION 3
Four companies calculate their fixed costs per period of production, and their variable costs per unit of
product during the period. Each company sets a selling price and calculates the number of units of
product that must be manufactured and sold in order to break even.
Company A has fixed costs per period of £1,200,000, variable costs per unit of £720, and sets a
selling price of £780. They calculate the number of units for break even as 20,000 units.
Calculate:
(a) The profit made by company A on production and sales of 28,000 units per period. (3 marks)
(b) The number of units for break even for company B. (3 marks)
(Total 12 marks)
Page 6 of 17
MODEL ANSWER TO QUESTION 3
Page 7 of 17
QUESTION 4
£
Annual sales 463,000
Annual purchases 329,600
Sales returns 11,200
Purchases returns 12,050
Stock at start of year 20,901
Stock at end of year 21,631
Average money owed by debtors 23,750
Average money owed to creditors 15,399
Postage, telephone, internet 4,033
Heating, lighting, 12,101
Rent 42,600
(b) Give a brief interpretation of the average credit given by the retailer to his debtors. (2 marks)
(c) Calculate the average number of days for which stock is held. (4 marks)
(Total 15 marks)
Page 8 of 17
MODEL ANSWER TO QUESTION 4
= 13%
(b) Average credit given is the average length of time it takes for the retailer’s debtors to pay the
retailer, and is approximately 19 days.
(c) Cost of goods sold (COGS) = stock at start + net purchases - stock at end
Average time in stock = average stock = £21,266 x 365 days = 24.5 days
COGS £316,820
Page 9 of 17
QUESTION 5
A business owner has a choice of 2 investment projects. The estimated costs and returns are as
follows:
Project P Project Q
£ £
Cost 720,000 980,000
(b) Using a discount factor of 15%, and the following table, calculate the net present value for
Project Q.
Year 1 0.870
Year 2 0.756
Year 3 0.658
Year 4 0.572
(5 marks)
Using the same discount factor, the net present value for Project P is £45,400 (positive). The payback
period for Project Q is approximately 2 years 10 months.
(c) Advise the business owner. Refer to your answers to both (a) and (b). (3 marks)
(Total 11 marks)
Page 10 of 17
MODEL ANSWER TO QUESTION 5
(c) Project Q has a negative net present value at a discount rate of 15%, and is not acceptable.
Project P has the shorter payback period and a positive net present value at this rate.
Project P is therefore recommended to proceed.
Page 11 of 17
QUESTION 6
Calculate:
Calculate:
(Total 12 marks)
Page 12 of 17
MODEL ANSWER TO QUESTION 6
Page 13 of 17
QUESTION 7
A factory owner buys two machines. Machine A costs £1,060,000 and is estimated to have a life of 4
years and a scrap value of £20,000.
(a) Calculate the percentage of the cost to be written off each year. Give your answer correct to 3
significant figures.
(3 marks)
Machine B is depreciated by the equal instalment method over 6 years. It has the same scrap value
as machine A. It also has the same book value at the end of year one as machine A.
(Total 14 marks)
Page 14 of 17
MODEL ANSWER TO QUESTION 7
0 0 0 1,060,000
1 260,000 260,000 800,000
2 260,000 520,000 540,000
3 260,000 780,000 280,000
4 260,000 1,040,000 20,000
(c) Depreciation of Machine B from end year 1 to end year 6 = 800,000 – 20,000 = £780,000
Page 15 of 17
QUESTION 8
(a) Calculate the price relative for Product A for year 2006 with year 2005 as the base year.
(2 marks)
(b) Calculate the index of prices for Product A for the years 2004 to 2006 with year 2004 as the base
year.
(3 marks)
(c) Calculate a chain base index for the sales of Product A for the figures shown. (3 marks)
The quantity relative for Product A for year 2007 with year 2006 as the base year was 1.08, while the
price decreased by £0.51 from year 2006 to year 2007.
(d) Calculate the increase in total income from the sales of Product A in year 2007 as a percentage
of the total income from sales of Product A in year 2006. Give your answer correct to 3
significant figures. (3 marks)
(Total 11 marks)
Page 16 of 17
MODEL ANSWER TO QUESTION 8
(a) Price relative for year 2006 with year 2005 as base = 10.50/11.25 = 0.93
(b) Index for year 2005 with year 2004 as base = 100 x 11.25 / 12.5 = 90
Index for year 2006 with year 2004 as base = 100 x 10.50 / 12.5 = 84
(c) Index for year 2005 with year 2004 as base = 100 x 276,000 / 240,000 = 115
Index for year 2006 with year 2005 as base = 100 x 345,000 / 276,000 = 125
Page 17 of 17