F1 Unit Test 4 Answers

1. Answer D

2. Answer A

3. Answer A

4. Answer C & D

5.
Solution

D = R x F x T/Y

R = 6% as a decimal so 0.06
F = 10,000
T = 60
Y = 360

D = 0.06 x 10,000 x 60/360

D = $100

6.

Solution

Calculate D first then P

D = R x F x T/Y

R = 4% as a decimal so 0.04
F = 10,000
T = 45
Y = 360

D = 0.04 x 10,000 x 45/360

D = $50
then...

P=F-D

P = (10,000 - 50) $9,950

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 1

7.

Solution

Period Item $ DR 5% PV DR 15% PV

1 -5 Interest 8 4.329 34.63 3.352 26.82

5 Capital 100 0.784 78.40 0.497 49.70

Market Value -102 -102

11.03 -25.48

IRR Calculation: 5 + (11.03 / (11.03 - (25.48)) (15 - 5) = 8.02

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8.

Solution

Perio Item $ DR 5% PV DR 15% PV

d

1 -5 Interest 10 4.329 43.29 3.352 33.52

5 Capital 100 0.784 78.40 0.497 49.70

Market Value -104 -104

17.69 -20.78

IRR Calculation: 5 + (17.69 / (17.69 - (20.78)) (15 - 5) = 9.6%

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9.

Answer
444

Working
0.09 20,000 x 90/360 = 450

10.

Answer
19,550

Working
20,000 – 450 = 19,550

11. Answer B

Perio Item $ DR 5% PV DR 15% PV

d

1 -5 Interest 6 4.329 25.97 3.352 20.11

5 Capital 100 0.784 78.40 0.497 49.70

Market Value -98 -98

6.37 -28.19

IRR Calculation: 5 + (6.37 / (6.37 - (28.19)) (15 - 5) = 6.84%

12. Answer A

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13.

Solution

Item Working Days

Inventory Period 300/800 x 365 137

Collection Period 200/1000 x 365 73

Less:

Payables Period 100/800 x 365 46

164

Part II

Solution

Item New Days Old Days Old Working New Movem’t

Balance Balance
Inventory 200 137 300 300 x 438 138
200/137

Receivabl 100 73 200 200 x 274 74

es 100/73

Less:

Payables 30 46 100 100 x 65 -35

30/46

270 164

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 Entries Dr Cr

Dr Inventory 138

Cr Cash 138

Dr Receivables 74

Cr Cash 74

Dr Payables 35

Cr Cash 35

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 Revised Balance Sheet

$‘000 Movement $‘000

ASSETS

Non Current Assets 1000 1000

Inventory 300 138 438

Receivables 200 74 274

Cash 300 -247 53

1800 1765

LIABILITIES

Ordinary Shares 800 800

Reserves 200 200

Long term Liabilities 700 700

Payables 100 -35 65

Overdraft 0 0

1800 1765

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 7

 Part III

Solution

Item New Days Old Days Old Working New Movem’t

Balance Balance
Inventory 90 200 438 438 x 197 -241
90/200

Receivabl 30 100 274 274 x 82 -192

es 30/100

Less:

Payables 60 30 65 65 x 60/30 130 65

60 270

Entries Dr Cr
Dr Cash 241

Cr Inventory 241

Dr Cash 192

Cr Receivables 192

Dr Cash 65

Cr Payables 65

498 498

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 8

 Revised Balance Sheet

$‘000 Movement $‘000

ASSETS

Non Current Assets 1000 1000

Inventory 438 -241 197

Receivables 274 -192 82

Cash 53 498 551

1765 1830

LIABILITIES

Ordinary Shares 800 800

Reserves 200 200

Long term Liabilities 700 700

Payables 65 65 130

Overdraft 0 0

1765 1830

14. Answer B

15. Answer B

16. Answer A

17. Answer A

18. Answer B

19. Answer A

20. Answer B

21. Answer A

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22.

Solution

Method = Compare the savings through reducing receivables by offering the discount to
the profit lost by doing so.
Working

Receivables Before 1200 x 3/12 300

Receivables After 20% who take (1200 x 10/365) x 7

discount 20%

Everyone else (1200 x 2/12) x 80% 160

167

Saving = (Reduction in receivables x (300 - 167) x 10% 13

Overdraft rate)

Lost Profit = Amount of Discount (1200 x 20%) x 2% 4.8

The saving made is greater than the profit lost so the discount should be offered

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 10

23.

Solution

Difference on Receivables

Current Receivables 4,600,000

Receivables Under Factor 37,400,000 x (30 / 365) 3,073,973

Difference 1,526,027

Benefits & Costs of Factor

Benefits of Using Factor

Reduced Overdraft Interest 1,526,027 x 0.05 76,301

Admin Cost Savings 100,000

Bad Debt Savings 350,000

Total Benefits 526,301

Costs Of Using Factor

Annual Fee 37,400,000 x 0.03 1122000

Extra Interest Cost 3,073,973 x 80% x (7% - 5%) 49,184

Total Costs 1171184

Total Benefits Less Total Costs -644,883

24. Answer B

25.Answer C

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26. Answer A

Current Receivables = 4,000,000

New (20/365 x 60) = 3,287,671

Reduction = 712,329
Multiply by O’draft rate = (712,329 x 12%) = $85,479

27. Answer D

28. Answer B

29.

Solution

Working

Annual Demand 1200 x 12 14400

Holding Cost $10 x 10% 1

Ordering Cost 12

EOQ √(2 x 12 x 14,400) / 1 588

Test

Ordering Costs (Cost Per order x 12 x (14,400 / 588) 294

(Demand / EOQ))

Holding Costs (Cost Per Unit x (EOQ / 2)) 1 x (588 / 2) 294

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 12

30.

Solution

Buffer Stock = Re-order level less usage in lead time

Re-order level 50,000

Lead Time 4 weeks

Usage per week 7,500

50,000 - (4 x 7,500) 20,000

31.

Solution

Working
Buffer Stock (Re-order level - (Lead time x 35,000 - (2 weeks x 10,000
amount used per week)) 625,000/50)

EOQ ignoring buffer stock √ (2 x 250 x 625,000 / 25,000

0.5)

Total cost Calculations

Order Costs (Cost per order x No. Orders) 250 x 6,250

(625,000/25,000)

Holding Costs (Holding cost p/unit x Average 0.5 x (25,000 / 2) 6,250

Stock)

Holding Cost for Buffer (Holding cost p/unit x 0.5 x 10,000 5,000
Buffer Stock)

Total Costs 17,500

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 13

32.

Solution

EOQ with Discounts

1) Calculate EOQ in normal way (and the costs)

2) Calculate costs at the lower level of each discount above the EOQ

Working

EOQ √ (2 x 30 x 12,000 / 1.1) 809

Total cost Calculations

Order Costs (Cost per order x No. 30 x (12,000 / 809) 445

Orders)

Holding Costs (Holding cost p/unit x 1.1 x (809/2) 445

Average Stock)

Cost of Purchases 12,000 x 11 132000

Total Costs 132890

If 1500 are ordered to take the

discount:

Total cost Calculations

Order Costs (Cost per order x No. 30 x (12,000 / 1500) 240

Orders)

Holding Costs (Holding cost p/unit x (1.1 x 99%) x (1500/2) 817

Average Stock)

Cost of Purchases 12,000 x (11 x 99%) 130,608

Total Costs 131665

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 14

33. Answer B

34. Answer A

35. Answer C

36. Answer D

37. Answer A

38. Answer C

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 15

39. Answer D

Solution

Working
Buffer Stock (Re-order level - (Lead time x 15,000 - (3 weeks x 7,000
amount used per week)) 800,000/50)

EOQ ignoring buffer stock √ (2 x 90 x 800,000 / 12,000

1)

Total cost Calculations

Order Costs (Cost per order x No. Orders) 90 x (800,000/12,000) 6,000

Holding Costs (Holding cost p/unit x Average 1 x (12,000 / 2) 6,000

Stock)

Holding Cost for Buffer (Holding cost p/unit x 1 x 7,000 7,000

Buffer Stock)

Total Costs 19,000

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 16

40.

Solution

Working

Annual Disbursements $500,000

Interest Rate 7%

Cost of making a transfer $250

Amount to transfer √(2 x 250 x 500,000) / $59,761

0.07

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 17

41.
Solution

Working
Holding Cost (Ave Cash ($59761 / 2) x 0.07 2091
Balance x Interest Rate)

Trading Cost (Cost of Transfer x $250 x (500,000 / 2091

No. Transfers) 59,761)

Total Cost 4182

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 18

42.

Solution

Working

Annual Disbursements $9,000,000

Interest Rate 9%

Cost of making a transfer $264.50

Amount to transfer √(2 x 264.5 x 9,000,000) / 230,000

0.09)

Working
Holding Cost (Ave Cash (230,000 / 2) x 0.09 10,350
Balance x Interest Rate)

Trading Cost (Cost of Transfer x $264.50 x (9,000,000 / 10,350

No. Transfers) 230,000)

Total Cost 20,700

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 19

43

Solution

Working

Lower Limit Given in Question 8,000

Spread (3 x ((3/4 x 50 x 25,303

4,000,000) / 0.00025))1/3
Upper Limit (Lower Limit + 8,000 + 25,303 33,303
Spread)

Return Point (Lower Limit + 8,000 + (1/3 x 25,303) 16,434

(1/3 x Spread)

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 20

44. Answer B

45. Answer C

Working

Annual Disbursements $30,000,000

Interest Rate 6%

Cost of making a transfer $500

Amount to transfer √(2 x 264.5 x 9,000,000) / 707,107

0.09)

Working
Holding Cost (Ave Cash (707,107 / 2) x 0.06 21,213
Balance x Interest Rate)

Trading Cost (Cost of Transfer x $500 x (30,000,000 / 21,213

No. Transfers) 707,107)

Total Cost 42,426

46. Answer D

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47.

Working

Lower Limit Given in Question 20,000

Spread (3 x ((3/4 x 80 x 25,303

6,250,000) / 0.00035))1/3
Upper Limit (Lower Limit + 8,000 + 25,303 33,303
Spread)

Return Point (Lower Limit + 8,000 + (1/3 x 25,303) 16,434

(1/3 x Spread)

F1 – F1 Unit Test 04 Answers – Pasindu Dewalegama 22

48.

Solution

Month 1 Month 2 Month 3 Month 4

$ $ $ $

Sales Receipts 40,000 42,000 44,100 46,305

Payments:

Wages -15,000 -15,500 -16,000 -16,500

Other Costs -10,000 -11,000 -12,000 -13,000

Capital
-80,000
Investment
Dividend
-120,000
Payment

Net Cash Flow 15,000 -64,500 -103,900 16,805

Opening
132,000 147,000 82,500 -21,400
Balance
Closing
147,000 82,500 -21,400 -4,595
Balance

Implications
- By month 3 the cash balance has fallen to $34,000.
- This is below the level that can be covered through the overdraft of $10,000.
- The operating cash flows are positive so this is not a trading problem.
- The cause is the capital investment and the dividend payment.
- This is a severe liquidity risk to the company.
- Action will need to be taken to prevent it.

Actions
- Postpone the Capital investment.
- Finance the capital investment in another way e.g. lease rather than buy.
- Postpone the dividend payment for one month meaning that the balance is -$16,000 at it’s
worst point. Ask to increase the overdraft to $16,000 and within the next month the positive
trading income should wipe out the negative balance.
- Reduce the dividend.

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49.
Answer
1,476,000

Working

October Sales 880 * 15% 132

September Sales 870 * 85% * 55% *(100-3%) 395
August Sales 860 * 85% * 35% * (100-3%) 248
July Sales 850 * 85% * 10% * (100-3%) 701
1,476

50.

Answer
155,000

Working
(140,000+15,000)

51.

Answer
A&B

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