FIN3702 Assignment 1 (QUALITY ANSWERS) Semester 2 2024

This document contains workings, explanations and solutions to the FIN3702 Assignment 1 (QUALITY ANSWERS) Semester 2 2024. For assistance whats-app us on 0.6.8..8.1.2..0.9.3.4... Question 1 Not yet answered Marked out of 1.00 Question 2 Not yet answered Marked out of 1.00 QUIZ Which of the following is appropriate collateral for a loan secured under a fl oating inventory lien? 1. Cars 2. Paper clips 3. Drill presses 4. File cabinets A fi rm has issued R2 million worth of commercial paper that has a 90-day maturity and sells for R1 950 000. The approximateannual interest rate on the issue of commercial paper is … (assume 365 days in a year). 1. 5% 2. 11% 3. 21% 4. 23% Question 3 Not yet answered Marked out of 1.00 Question 4 Not yet answered Marked out of 1.00 Question 5 Not yet answered Marked out of 1.00 Lenders recognize that by having an interest in collateral they can reduce losses if the borrowing fi rm defaults, … 1. and the presence of collateral reduces the risk of default. 2. but the presence of collateral has no impact on the risk of default. 3. therefore, lenders prefer to lend to customers from whom they are able to require collateral. 4. therefore, lenders will impose a higher interest rate on unsecured short-term borrowing. A Taijikwan Mining fi rm borrowed R100,000 for one year under a revolving credit agreement that authorized and guaranteedthe fi rm access to R200,000. The revolving credit agreement had a stated interest rate of 7.5% and charged the fi rm a 1%commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on theloan was … 1. 7.5% 2. 8.0% 3. 8.5% 4. 9.0% The major type of loan made by banks to businesses is the … 1. fi xed-asset-based loan. 2. short-term secured loan. 3. capital improvement loan. 4. short-term self-liquidating loan. Question 6 Not yet answered Marked out of 1.00 Question 7 Not yet answered Marked out of 1.00 Question 8 Not yet answered Marked out of 1.00 Eastwood Grocers’ budgeted monthly sales are R3 000. 40% of its customers pay in the fi rst month and take the 2% discount.The remaining 60% pay in the month following the sale and don't receive a discount. The company’s bad debts are negligible.Purchases for next month's sales are constant each month at R1 500. Other payments for wages, rent, and taxes are constantat R700 per month. What is the fi rm’s average cash gain/loss during a typical month? 1. R728. 2. R740. 3. R776. 4. R800. Which of the following statements concerning the cash budget is true? 1. Cash budgets do not include cash infl ows from long-term sources such as bond issues 2. Cash budgets do not include fi nancial expenses such as interest and dividend payments 3. Depreciation expense is not explicitly included but depreciation effects are implicitly included in estimated taxpayments 4. Statements 1 and 3 are correct D iamond Trust Bank Ltd has offered a manufacturing company the following alternatives in response to the R275 000 one-year loan application made to the bank. • alternative 1: 13% discount interest, with an 8% compensating balance. • alternative 2: 16% simple interest with interest paid monthly. What will be the effective annual rate if this company chooses to take the cheaper alternative? 1. 13.63%. 2. 16.08% 3. 16.46% 4. 17.22%. Question 9 Not yet answered Marked out of 1.00 Question 10 Not yet answered Marked out of 1.00 Question 11 Not yet answered Marked out of 1.00 The information provided below applies to the next three questions. Kuscon Ltd is considering whether to pursue an aggressive or conservative current asset investment policy. The fi rm'sannual sales are expected to total R3 600 000, its fi xed assets turnover ratio equals 4.0, and its debt and ordinary share equityare each 50% of total assets. EBIT is R150 000, the interest rate on the fi rm's debt is 10%, and the tax rate is 40%. If thecompany follows an aggressive policy, its total assets turnover will be 2.5. Under a conservative policy its total assetsturnover will be 2.3. Question 09 If the fi rm adopts an aggressive policy, approximately how much lower will its interest expense be compared to theconservative policy? 1. R6 261 2. R8 861 3. R9 327 4. R9 818 What's the approximate difference in the projected return on equities’ (ROEs) under the aggressive and conservative policies? 1. 0.6% 2. 1.5% 3. 1.8% 4. 2.16% Assume that the company believes that if it adopts an aggressive policy, its sales will fall by 15% and the EBIT by 10%.However, its total assets turnover, debt ratio, interest rate and tax rate will all remain the same. In this situation, what will bethe approximate difference between the projected ROEs under the aggressive and conservative policies? 1. 0.85%. 2. 1.10%. 3. 1.74%. 4. 2.16% Question 12 Not yet answered Marked out of 1.00 Question 13 Not yet answered Marked out of 1.00 Question 14 Not yet answered Marked out of 1.00 Loyolo Ltd.’s budgeted monthly sales are R3 000 000. Altogether 40% of its customers pay in the fi rst month and take the 3%discount. The remaining 60% pay in the following month of sale and do not receive a discount. The company’s bad debts arenegligible and can be ignored. Purchases for the next month’s sales are constant each month at R1 500 000. Other paymentsfor wages, rent and taxes are constant at R708 000 per month. Using a single month’s cash budget, what will the cashgain/loss be during a typical month at this fi rm? 1. R728 000 2. R740 000 3. R756 000 4. R776 000 A … fl oat is the delay between the receipt of a check and its actual deposit into the fi rm's account. 1. deposit 2. clearing 3. processing 4. disbursement In April 2023, a fi rm had an ending cash balance of R35 000. In May, the fi rm had total cash receipts of R40 000 and totalcash disbursements of R50 000.The minimum cash balance required by this fi rm is R25 000. At the end of May, the fi rm had… 1. no excess. 2. a required fi nancing of R25 000. 3. a required fi nancing of R10 000. 4. an excess cash balance of R25 000. Question 15 Not yet answered Marked out of 1.00 Question 16 Not yet answered Marked out of 1.00 Question 17 Not yet answered Marked out of 1.00 The primary source of secured short-term loans to businesses are … 1. savings, loans and factors. 2. commercial paper dealers and investment bankers. 3. commercial banks and commercial fi nance companies. 4. life insurance companies and government securities brokers. A fi nance company has just sold an issue of 30-day commercial paper with a face value of R5 000 000. The fi rm has justreceived R4 958 000. What is the effective annual interest rate on the commercial paper? (Assume a 360-day year). 1. 8.26% 2. 10.08% 3. 10.17% 4. 10.31% A fi rm may have a negative cash conversion cycle if it … 1. carries high inventory and sells its products for cash. 2. carries high inventory and sells its products on credit. 3. carries very little inventory and sells its products on credit. 4. carries very little inventory and sells its products for cash. Question 18 Not yet answered Marked out of 1.00 Question 19 Not yet answered Marked out of 1.00 Nikiwe Ltd needs to raise more capital. The company purchases supplies on terms of 2/10 net 20, and it currently takes thediscount. The one way of getting the much-needed funds would be to forgo this discount. The owner believes she coulddelay payment to 50 days without any adverse effects. What is the effective annual percentage cost of funds raised by thisaction? (Assume a 365-day year). 1. 10.59% 2. 11.74% 3. 13.01% 4. 20.24% The information below applies to the next two questions. Extracted statement of fi nancial position for AB Pharmacies Ltd Assets Equity & Liabilities Current assets R10 000 Current liabilities R5 000 Fixed assets R20 000 Long-term debt R12 000 Equity R13 000 Total R30 000 Total R30 000 The company earns 5% on current assets and 15% on fi xed assets. The fi rm’s current liabilities cost 7% to maintain and theaverage annual cost of long-term funds is 20%. Question 19 The fi rm’s initial annual profi ts on total assets are … 1. R2 500. 2. R3 000. 3. R3 500. 4. R4 500. Question 20 Not yet answered Marked out of 1.00 If the fi rm were to shift R3 000 of current assets to fi xed assets, the fi rm’s net working capital would … the annual profi ts ontotal assets would … and the risk of technical insolvency would … respectively. 1. decrease; increase; increase 2. increase; decrease; decrease 3. decrease; increase; decrease 4. increase; decrease; increase