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QUESTION 1

(a) Calculate the principal that will earn a total of 3,255 simple interest in 4 years at 5%
per annum.
(3 marks)
(b) An investment account of 22,000 attracts 6.55% compound interest per annum. How much will
be in the account after 3 years if the interest is compounded annually?
(4 marks)
(c) How much more interest would have been earned if the interest had been compounded
six-monthly?
SERIES 4 EXAMINATION 2004
(5 marks)

ADVANCED BUSINESS CALCULATIONS

(Total 12 marks)

LEVEL 3
(Code No: 3003)

QUESTION 2
A factory manufactures two main products.

TUESDAY 30 NOVEMBER
_________

Product X has average unit costs of production during a trading year as follows:

Components
84
Labour
125
Instructions to Candidates
Production overheads
105
Distribution expenses
60
(a) The time allowed for this examination is 3 hours.
The production overheads do not vary irrespective of how many units are produced.
(b) Answer all questions.
55% of the distribution expenses vary directly with the number of units produced.
80% of the labour costs vary directly with the number of units produced.
(c)
answers
be written
in directly
blue or black
ink/ballpoint.
All Your
the cost
of theshould
components
varies
with the
number of units produced.
graphs, charts, diagrams, etc.

Pencil may be used only for

(a)
(d) Calculate:
All answers must be clearly and correctly numbered but need not be in numerical order. If no
working is shown, a correct answer may receive full marks but an incorrect answer will receive no
(i) Candidates
the variable
per unit
marks.
arecost
therefore
advised to indicate how they arrive at their answers.
(ii) the fixed cost per unit for the trading year.

(3 marks)
(3 marks)

(e) All calculations, where applicable, must be shown on the answer paper provided.
Product Y has fixed costs of 3,250,000 and variable costs per unit of 210 during a trading year. It is
sold to wholesalers at 275 per unit.
(f) The use of statistical tables is allowed.
(b)
Calculate: must pay due regard to good figures, accuracy and neatness in their work.
(g) Candidates
(i) the may
number
units thatprovided
must be sold
in order to give
breaknoeven
(h) Candidates
use of
calculators
the calculators
printout, have no word display
(ii)
the
level
of
output
required
to
provide
a
profit
of
facilities, are silent and cordless. The provision of batteries455,000.
and responsibility for their condition
must rest with the candidate.

(3 marks)
(3 marks)
(Total 12 marks)

_________

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QUESTION 3
100 of 4% government stock can be bought for 83. A bank invested 50,100 in the stock and
held the stock for 3 years.
(a) Calculate the total percentage yield.
(5 marks)
The bank could have invested the 50,100 instead in 6% Preference Shares (nominal value 0.50)
at 3.34 each.
(b) Calculate the interest over the 3 years.
(5 marks)
(Total 10 marks)

QUESTION 4
The following information relates to a retailers business for one year:

Annual credit sales


Annual credit purchases
Sales returns
Purchases returns
Stock at start of year
Stock at end of year
Average money owed by debtors
Average money owed to creditors
Postage and telephone
Heating and lighting
Rent

121,000
87,480
3,500
4,730
5,746
6,006
4,700
4,965
1,500
2,800
14,500

(a) Calculate the ratios for:


(i) overhead expenses
(ii) average credit taken
(iii) average credit given.

(4 marks)
(3 marks)
(2 marks)

(b) Give a brief interpretation of the average credit given by the retailer.
(2 marks)
(c) Calculate the average number of days for which stock is held.
(4 marks)
(Total 15 marks)

3003/4/04

OVER

QUESTION 5
A business owner has a choice of two investment projects. The estimated costs and returns are as
follows (all figures are in ):
Project A
Cost
Year 1 cash inflow
Year 2 cash inflow
Year 3 cash inflow
Year 4 cash inflow

Project B

2,750,000
500,000
900,000
1,100,000
1,000,000

800,000
200,000
400,000
600,000
400,000

(a) Calculate the payback period for each project in years and months and advise the owner.
(7 marks)
Project X is estimated to have a net present value of 42,000 at a discount factor of 12% and a
negative net present value of 63,000, at a discount factor of 13%.
(b) Calculate the internal rate of return of the Project.
(3 marks)
Project Y also has a net present value of 42,000 at a discount factor of 12%. It has an internal rate of
return of 12.7%.
(c) Calculate the net present value of the Project at a discount factor of 13%.
(5 marks)
(Total 15 marks)

QUESTION 6
A bankrupt business owed 98,000 to fully secured creditors and 112,000 to unsecured creditors.
The assets of the business realised 168,000.
(a) Express the business assets as:
(i)
(ii)

a percentage of the liabilities


a fraction of the liabilities. Give your answer in its simplest terms.

(3 marks)
(1 mark)

(b) Calculate how much in the will be paid to the unsecured creditors.
(3 marks)
In another company bankruptcy, 80 pence in the pound was paid to unsecured creditors.
(c) Calculate:
(i)
(ii)

how much was owed to an unsecured creditor who was paid 16,000
how much was paid to an unsecured creditor who was owed 15,500.

(4 marks)
(Total 11 marks)

3003/4/04

QUESTION 7
A factory machine that cost 560,000 is depreciated by 35% of its value each year using the
diminishing balance method.
(a) Prepare a depreciation schedule for the first 3 years that shows, for each year, the yearly
depreciation, the accumulated depreciation and the book value at the end of the year.
(5 marks)
(b) Giving your answers to the nearest pound, calculate the book value at the end of year 7 and the
amount of depreciation that occurs during year 8.
(5 marks)
(c) Calculate the total depreciation from the end of year 3 to the end of year 7.
(2 marks)
(Total 12 marks)

QUESTION 8
A particular item is sold in each of the calendar years 2000 to 2003. In each year the price is held
constant during the year. The following table gives the price in each year and the quantity sold in that
year. The figure for the quantity sold in 2003 is omitted.
Year

2000

2001

2002

2003

Price

3.00

3.39

2.95

3.19

35,000

33,000

39,600

Quantity sold

(a) Calculate the price relative for 2001 with 2000 as the base year.
(2 marks)
(b) Calculate the quantity relative for 2002 with 2001 as the base year.
(2 marks)
(c) Giving each figure correct to one decimal place, show the prices for 2001 to 2003 as a
chain base index.
(5 marks)
(d) The quantity relative for 2003 with 2002 as the base year is 0.97. Calculate the quantity
sold in 2003.
(2 marks)
(e) Provide an interpretation in percentage terms of the quantity relative for 2003 with 2002
as the base year, given in (d).
(2 marks)
(Total 13 marks)

3003/4/04

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