MBA 7001 Cardiff School Investment Appraisal & Cash Budgets Exam Questions Read attached EXAM questions carefully before you answer .. INSTRUCTIONS: 1. Y

MBA 7001 Cardiff School Investment Appraisal & Cash Budgets Exam Questions Read attached EXAM questions carefully before you answer ..

INSTRUCTIONS:

1. You should answer in MS Excel sheets .

2. This paper consists of three questions, all questions are compulsory.

3. Question 1 is worth 50 marks and questions 2 and 3 are worth 25 marks each. A total

of 100 marks available.

4. Show workings for all calculations.

5. 0% Plagiarism Cardiff School 0f Management
Ysgol Reoli Caerdydd
Accounting for Decision Makers
Level: 7
Exam
Module No: MBA7001
Examination Date(s): 5:00 pm of Monday the 1st of June 2020 to 5:00 pm of Wednesday
the 3rd of June 2020
Time Allowed:
48 hours
Weighting of Assessment: 50%
Due to COVID 19 PANDEMIC this Exam has a 48 hours examination window.
Instructions:
1. This exam paper consists of three questions, all questions are compulsory.
2. Question 1 is worth 50 marks and questions 2 and 3 are worth 25 marks each. A total
of 100 marks available.
3. You can answer on MS Excel sheets as well and you need to submit all your answers to
the link in the Moodle by 5:00 pm of Wednesday the 3rd of June 2020.
4. You have 48 hours from receiving this Examination paper to submitting your answers.
LEARNING OUTCOMES ACCESSED
– Apply and critically evaluate the techniques of investment appraisal
– Interpret and report about the financial data commonly provided by accountants to
managers
– Demonstrate an understanding of budgeting practice, by preparing & interpreting cash
budgets as part of budgetary control.
1
Question 1.
RetailMart Ltd. produces three distinct products and sells them in bulk to smaller retailers. Its
managers are concerned that the company’s profit is not as high as its competitors. They believe
they fall in profits could be caused due to the company’s uncompetitive selling price(s), for one or
more products. Details of the company’s costs and selling prices are as follows: Product
Tie
Shoe
Watch
£
£
£
Selling Price
40.00
60.00
100.00
Direct Costs
Labour
20.00
30.00
40.00
Direct Material – battery
15.00
Direct Material – other
10.00
20.00
15.00
Total Direct Cost
30.00
50.00
70.00
Units produced
Labour hours
1500
2 hour per unit
1200
2 hour per unit
1000
4 hour per unit
Currently the company uses the traditional method of allocating indirect overheads but is
considering using the ABC method for increasing the accuracy. The company’s indirect overheads are
as follows: £
Depreciation
6000
Purchasing Expenses
2200
Direct Material – battery delivery inspection costs
1000
Direct Material – other delivery inspection costs
1300
Set-up costs
3000
Canteen expenses
10000
Activities associated with the overheads are: Number of suppliers
Component deliveries per month
Production runs per month
No. of employees
Value of machinery
Tie
5
3
1
7
15000
Shoe
15
5
1
13
15000
Watch
5
1
10
5
60000
Required: a) Calculate the profit per unit for the three products based on the company’s current labour hours
based overhead method.
(20 Marks)
b) Calculate the profit per unit for the three products using the principles of ABC. Explain your
reasons for choosing the bases of overhead allocation.
(30 Marks)
TOTAL MARKS = 50
2
Question 2.
Caribbean Flavours Ltd. is planning to diversify its operations by exploring two new business
opportunities.
Opportunity “New Restaurant” has an expected working life of four years, requires £100,000 of
initial capital expenditure and a further £25,000 of working capital. At the end of year 4 the residual
value is forecast to be £40000.
Opportunity “New Pool” also has an estimated working life of four years and has an initial cash
outflow of £110,000 which includes working capital of £30,000. At the end of year 4 the residual
value is estimated to be £45,000. Estimates for net cash flow for both projects are as follows:
Year
1
2
3
4
New Restaurant
£40,000
£50,000
£60,000
£61,000
New Pool
£42,000
£50,000
£52,000
£55,000
Year
1
2
3
4
Present Value Rates at 10%
0.909
0.826
0.751
0.683
Present Value Rates at 35%
0.741
0.549
0.406
0.301
Required: a) Utilising the above information, numerically assess the projects using: (i) Payback
(6 Marks)
(ii) Net Present Value using the present value rates at 10%
(6 Marks)
(iii) Internal rate of return using present value rates at 35%
(8 Marks)
b) Based on your evaluation, make recommendations as to which project should be undertaken?
(5 Marks)
TOTAL MARKS = 25
3
Question 3.
The CEO of Rosewood Limited wishes to prepare a cash flow budget to estimate the company’s cash
surplus or deficit. Rosewood’s Statement of Financial position is as follows.
Statement of Financial Position of Rosewood Limited as at 31 January 20X7
£’000
Non-current assets at cost
Premises
Less: accumulated depreciation on Premises
Furniture
Less: accumulated depreciation on Furniture
Current assets
Cash
Receivables
Closing Inventory
Prepaid expenses
3000
300
1200
300
0
100
50
50
TOTAL ASSETS
Current liabilities:
Payables
Short term loan
Outstanding Expenses
Bank overdraft
TOTAL EQUITY & LIABILITIES
2700
900
3600
200
3800
10
20
60
10
Non-current liabilities
Debentures
Equity
Ordinary share capital
Share Premium
£’000
100
1000
2600
100
2700
3800
4
Additional Notes: The directors of the company have prepared the following estimates for the next 6 months: (a) Sales and purchases are expected to be as follows:
February
March
April
May
June
July
Sales £’000
72
74
79
81
84
92
Purchases £’000
25
28
34
38
51
52
(b) All sales are on credit. 60% of debtors pay one month after the month of sale. 20% of debtors pay
two months after the month of sale. 20% of the debtors pay three months after the sale. Sales in
January 20X7 were £70,000. Sales in December 20X6 were £65,000.
(c) All purchases are on one month’s trade credit.
(d) The Short-term loan is due for payment in April 20X7.
(e) The Outstanding expenses are due for payment in March 20X7.
(f) Administration and finance expenses (including depreciation of Premises) are expected to be
£25,000 per month in February and £30,000 per month in subsequent months.
(g) Selling and distribution expenses (including depreciation of Furniture) are expected to be £30,000
per month in February and £36,000 per month in subsequent months.
(h) Depreciation of Premises is at the rate of 5% of cost per annum.
(i) Depreciation of Furniture is at the rate of 10% of cost per annum.
Required: a) Prepare a cash budget for Rosewood Limited for the six months ended 31 July 20X7 which shows
the cash balance at the end of each month.
(22 Marks)
b) Discuss the cash flow problems will the company face over the next six months and how might the
company deal with them?
(3 Marks)
TOTAL MARKS = 25
End of Exam
5

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