FIN3702
EXAM PACK
, lOMoARcPSD|18222662
FIN3702
CONFIDENTIAL May/June 2023
SECTION A: MULTIPLE-CHOICE QUESTIONS [30 MARKS]
1. ABSA Bank Ltd has offered Tumi Pizza Parlour the following in response to a
R100 000 one-year loan application which was made to the bank. The stated
rate was 7% and a 20% compensating balance. What will the effective annual
rate be...
1. 7.00%.
2. 8.40%.
3. 8.75%.
4. 13.00%.
2. Boithumelo Furniture Suppliers maintain an average inventory of 2000 desks
to supply to schools. The carrying cost per desk is estimated at R1.25. The
company places an order of 4000 desks on the first of each quarter and the
order cost is R80. What will the company’s carrying cost be if the firm uses the
EOQ method of inventory management?
1. R 894.
2. R 1 215.
3. R 2 500.
4. R16 000.
3. Jamil Katende purchased inventory to the value of R100 000. The terms of sale
were 3/15 net 45. What is the effective annual interest rate if he paid the full
amount in 45 days?
1. 28.00%
2. 44.90%
3. 57.60%
4. 74.30%
4. The credit policy of Phenya Archar Stores is 2/10 net 30. At present 25% of
customers take advantage of the discount, 55% pay within the net period, and
the remainder pay within 42 days of invoicing. What will the effect on
receivables be if all customers take the discount?
1. Lower than the present level.
2. Higher than the present level.
3. Same as the present level.
4. Cannot be determined.
5. Mamaro Ltd. has a receivables turnover rate of 11.5, a payables turnover of 9.8
and an inventory turnover rate of 13.6. What is the approximate length of the
firms operating cycle? (Assume a 365 day-year)
1. 15 days.
2. 22 days.
3. 37 days.
4. 60 days.
Page 3 of 20
, lOMoARcPSD|18222662
FIN3702
CONFIDENTIAL May/June 2023
6. Racoon Ltd borrowed R250 000 for one year under a revolving credit
agreement that authorised and guaranteed the firm access to R350 000. The
revolving credit agreement had a stated interest rate of 7.5% and charged the
firm a 4% commitment fee on the unused portion of the agreement. Based on
this information, the effective annual rate on the loan was … (assume 360 days
in a year).
1. 7.5%.
2. 7.9%.
3 9.1%.
4. 9.5%.
7. Bathabile borrows R2 000 000 from the bank for one year at a stated annual
interest rate of 14% with interest paid in advance. The bank requires her to
maintain a compensating balance equal to 15% on this loan. What is the
effective annual interest rate that she will be charged on this loan?
1. 8.57%
2. 16.28%
3. 19.72%
4. 21.21%
8. A company had net non-current assets of R13 000 at the end of 2021 and
R11 000 at the end of 2020. In addition, the company had a depreciation
expense of R500 during 2021 and R350 during 2020. Based on this information,
the company’s net non-current asset investment for 2021 was …
1. R 0.
2. R2 000.
3. R2 350.
4. R2 500.
The information provided below applies to the next three questions.
Lumamilo Ltd is considering whether to pursue an aggressive or conservative current
asset investment policy. The firm's annual sales are expected to total R3 600 000, its
fixed assets turnover ratio equals 4.0, and its debt and ordinary share equity are each
50% of total assets. EBIT is R150 000, the interest rate on the firm's debt is 10%, and
the tax rate is 40%. If the company follows an aggressive policy, its total assets
turnover will be 2.5. Under a conservative policy its total assets turnover will be 2.2.
9. If the firm adopts an aggressive policy, how much lower will its interest expense
be than under the conservative policy?
1. R8 418.
2. R8 861.
3. R9 327.
4. R9 818.
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, lOMoARcPSD|18222662
FIN3702
CONFIDENTIAL May/June 2023
10. What's the difference in the projected return on equities’ (ROEs) under the
aggressive and conservative policies?
1. 1.2%
2. 1.5%
3. 1.8%
4. 2.16%
11. 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 be the difference between the projected ROEs under the aggressive
and conservative policies?
1. 2.24%.
2. 2.46%.
3. 2.70%.
4. 2.98%.
12. Loyiso Ltd.’s budgeted monthly sales are R3 000 000. Altogether 40% of its
customers pay in the first month and take the 2%. The remaining 60% pay in
the following month of sale and do not receive a discount. Dimple Grocers Ltd.’s
bad debts are negligible and can be ignored. Purchases for the next month’s
sales are constant each month at R1 500 000. Other payments for wages, rent
and taxes are constant at R700 000 per month. Using a single month’s cash
budget, what will the cash gain/loss be during a typical month at this firm?
1. R728 000
2. R740 000
3. R756 000
4. R776 000
13. Choomex Ltd has issued a R1 000 000 commercial paper for R991 000 for 60
days. Based on this information and assuming a 365-day year, the effective
annual rate of interest on the commercial paper would be …
1. 5.65%.
2. 6.29%.
3. 7.61%.
4. 8.13%.
Page 5 of 20
EXAM PACK
, lOMoARcPSD|18222662
FIN3702
CONFIDENTIAL May/June 2023
SECTION A: MULTIPLE-CHOICE QUESTIONS [30 MARKS]
1. ABSA Bank Ltd has offered Tumi Pizza Parlour the following in response to a
R100 000 one-year loan application which was made to the bank. The stated
rate was 7% and a 20% compensating balance. What will the effective annual
rate be...
1. 7.00%.
2. 8.40%.
3. 8.75%.
4. 13.00%.
2. Boithumelo Furniture Suppliers maintain an average inventory of 2000 desks
to supply to schools. The carrying cost per desk is estimated at R1.25. The
company places an order of 4000 desks on the first of each quarter and the
order cost is R80. What will the company’s carrying cost be if the firm uses the
EOQ method of inventory management?
1. R 894.
2. R 1 215.
3. R 2 500.
4. R16 000.
3. Jamil Katende purchased inventory to the value of R100 000. The terms of sale
were 3/15 net 45. What is the effective annual interest rate if he paid the full
amount in 45 days?
1. 28.00%
2. 44.90%
3. 57.60%
4. 74.30%
4. The credit policy of Phenya Archar Stores is 2/10 net 30. At present 25% of
customers take advantage of the discount, 55% pay within the net period, and
the remainder pay within 42 days of invoicing. What will the effect on
receivables be if all customers take the discount?
1. Lower than the present level.
2. Higher than the present level.
3. Same as the present level.
4. Cannot be determined.
5. Mamaro Ltd. has a receivables turnover rate of 11.5, a payables turnover of 9.8
and an inventory turnover rate of 13.6. What is the approximate length of the
firms operating cycle? (Assume a 365 day-year)
1. 15 days.
2. 22 days.
3. 37 days.
4. 60 days.
Page 3 of 20
, lOMoARcPSD|18222662
FIN3702
CONFIDENTIAL May/June 2023
6. Racoon Ltd borrowed R250 000 for one year under a revolving credit
agreement that authorised and guaranteed the firm access to R350 000. The
revolving credit agreement had a stated interest rate of 7.5% and charged the
firm a 4% commitment fee on the unused portion of the agreement. Based on
this information, the effective annual rate on the loan was … (assume 360 days
in a year).
1. 7.5%.
2. 7.9%.
3 9.1%.
4. 9.5%.
7. Bathabile borrows R2 000 000 from the bank for one year at a stated annual
interest rate of 14% with interest paid in advance. The bank requires her to
maintain a compensating balance equal to 15% on this loan. What is the
effective annual interest rate that she will be charged on this loan?
1. 8.57%
2. 16.28%
3. 19.72%
4. 21.21%
8. A company had net non-current assets of R13 000 at the end of 2021 and
R11 000 at the end of 2020. In addition, the company had a depreciation
expense of R500 during 2021 and R350 during 2020. Based on this information,
the company’s net non-current asset investment for 2021 was …
1. R 0.
2. R2 000.
3. R2 350.
4. R2 500.
The information provided below applies to the next three questions.
Lumamilo Ltd is considering whether to pursue an aggressive or conservative current
asset investment policy. The firm's annual sales are expected to total R3 600 000, its
fixed assets turnover ratio equals 4.0, and its debt and ordinary share equity are each
50% of total assets. EBIT is R150 000, the interest rate on the firm's debt is 10%, and
the tax rate is 40%. If the company follows an aggressive policy, its total assets
turnover will be 2.5. Under a conservative policy its total assets turnover will be 2.2.
9. If the firm adopts an aggressive policy, how much lower will its interest expense
be than under the conservative policy?
1. R8 418.
2. R8 861.
3. R9 327.
4. R9 818.
Page 4 of 20
, lOMoARcPSD|18222662
FIN3702
CONFIDENTIAL May/June 2023
10. What's the difference in the projected return on equities’ (ROEs) under the
aggressive and conservative policies?
1. 1.2%
2. 1.5%
3. 1.8%
4. 2.16%
11. 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 be the difference between the projected ROEs under the aggressive
and conservative policies?
1. 2.24%.
2. 2.46%.
3. 2.70%.
4. 2.98%.
12. Loyiso Ltd.’s budgeted monthly sales are R3 000 000. Altogether 40% of its
customers pay in the first month and take the 2%. The remaining 60% pay in
the following month of sale and do not receive a discount. Dimple Grocers Ltd.’s
bad debts are negligible and can be ignored. Purchases for the next month’s
sales are constant each month at R1 500 000. Other payments for wages, rent
and taxes are constant at R700 000 per month. Using a single month’s cash
budget, what will the cash gain/loss be during a typical month at this firm?
1. R728 000
2. R740 000
3. R756 000
4. R776 000
13. Choomex Ltd has issued a R1 000 000 commercial paper for R991 000 for 60
days. Based on this information and assuming a 365-day year, the effective
annual rate of interest on the commercial paper would be …
1. 5.65%.
2. 6.29%.
3. 7.61%.
4. 8.13%.
Page 5 of 20
