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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.
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
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
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
Revenue
Cost of sales
Gross profit
Expenses
Net profit before tax
Tax
Net profit after tax
000s
Non-current assets
5
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