FIN3702 Assignment 1 Semester 1 2023 (628921)

FIN3702 Assignment 1 Semester 1 2023 () 100% TRUSTED workings, explanations and solutions. For assistance call or us on . QUESTION 1 Which one of the following is incorrect according to the statement below? The operating cash required by a firm can be minimised by … 1. keeping lower inventory levels. 2. shortening the production cycle. 3. paying accounts payable as soon as possible. 4. collecting account receivable as quickly as possible. QUESTION 2 The efficient management of cash involves ... a. taking advantage of cash discounts. b. maximizing the cash turnover. c. increasing the inventory levels. d. using any technique to collect accounts receivable. e. delaying cash payments without affecting creditworthiness. 1. a,b,c 2. b,c,d 3. c,d,e 4. a,d,e 5. a,b,e QUESTION 3 First National Bank Ltd has offered Junior the following alternatives in response to the R75 000 one-year loan application he made to the bank. · Alternative 1: 7% discount interest, with a 10% compensating balance. · Alternative 2: 8% simple interest with interest paid monthly. What will be the effective annual rate if Junior chooses to take the cheaper alternative? 1. 7.23% 2. 7.67% 3. 8.00% 4. 8.30% QUESTION 4 Which of the following statements are correct? a. Net working capital is defined as the difference between current assets and current liabilities. b. Net working capital is the portion of a firm’s current assets financed with short- term funds. c. The less liquid a firm is, the less likely it will be able to meet its current obligations. d. The more predictable the firm’s cash inflows, the more net working capital it requires. e. Net working capital can be used to evaluate the possibility of technical solvency. 1. a,b,c 2. b,c,d 3. a,c,e 4. c,d,e 5. b,d QUESTION 5 Which one of the following statements are incorrect? a. The aggressive approach makes use of partly short-term and partly long-term funds to finance seasonal needs. b. The conservative approach results in the lowest risk, return and cost. c. The conservative approach has the highest cost. d. Risk and return are highest with the aggressive approach. e. The conservative approach has the lowest risk and return. 1. a,b 2. a,c 3. b,c 4. b,d 5. d,e QUESTION 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%. EAR = (Used funds x Interest)/ Borrowed amount QUESTION 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% 5. None of the above QUESTION 8 Which of the following statements are correct? a. Depreciation is a source of funds. b. Depreciation decreases after tax income. c. Depreciation does not influence the cash flow. d. Earnings before interest and tax excludes depreciation. 1. a, c 2. a, b, c 3. a, d. 4. a, c, d 5. a, b QUESTION 9 Operating cash flow is calculated as follows: 1. Earnings before tax and non-cash charges. 2. Earnings before tax minus non-cash charges. 3. Net income after taxes and non-cash charges. 4. Net income after taxes minus non-cash charges. QUESTION 10 Which one of the following statements is correct with regards to “sources of funds”? 1. An increase in an asset, a decrease in a liability 2. A decrease in an asset, an increase in a liability 3. A decrease in a liability, an increase in income 4. A decrease in liability, an increase in depreciation QUESTION 11 Accruals represent a form of … 1. adjustable-rate debt because a varying rate of interest is paid on the outstanding balance (amount). 2. expensive debt because high rates of interest are paid on the outstanding balance. 3. cheap debt because low rates of interest are paid on the outstanding balance. 4. free debt because no explicit interest is paid on the outstanding balance. 5. fixed-rate debt because a fixed rate of interest is paid on the outstanding balance. QUESTION 12 The three main working capital strategies—aggressive, conservative, and moderate—differ primarily in the … 1. amount of trade credit a firm uses. 2. relative amounts of short-term debt a firm uses. 3. average level of temporary current assets a firm maintains. 4. minimum level of permanent current assets a firm maintains. 5. relative amount of long-term debt versus equity that a firm uses to finance its permanent current assets. QUESTION 13 In the control phase of the financial planning process, projected financial statements must be evaluated to determine … 1. the firm's operating breakeven at different sales levels. 2. whether economies of scale have been achieved. 3. the level of leverage the firm can attain with its forecasts. 4. whether the forecasts meet the firm's financial targets. 5. the amount of internal funds the firm must raise to meet its financial goals. QUESTION 14 Which of the following is (are) typically part of a cash budget? 1. Payment lag 2. Cumulative cash 3. Payment for plant construction 4. Options 1 and 3 5. All the above QUESTION 15 The primary reason a firm holds marketable securities is because they … 1. substitute for its long-term debt. 2. are useful for managing credit sales. 3. can be used to help speed up collections of its accounts payable. 4. offer a place to temporarily invest cash balances to earn high rates of return. 5. permit the firm to earn positive returns on cash that is not needed to pay bills in the current period. QUESTION 16 A firm is considering relaxing its credit standards which will result in an increase in annual sales from R3 million to R3.75 million, a decrease in the cost of annual sales from 2 225,000 to R2 000,000, an increase in additional profit contribution from sales of R10 000 and an increase in the average collection period of 15 days, from 20 to 35 days. The bad debt is expected to increase from 1% to 1.5% of sales. The firm’s required return on investment is 15%. The net result of the firm relaxing its credit standard is … 1. R10 000. 2. -R16 250. 3. -R26 875. 4. -R16 875. QUESTION 17 A corporation borrowed R100 000 for six months from the bank. The rate is prime rate plus 2%. At the beginning of the loan the prime rate was 8.5% but this changed to 9% after two months. This was the only change. Approximately how much interest must this company pay for the period (assume 365 days in a year)? 1. R3 616 2. R3 667 3. R5 342 4. R5 416 QUESTION 18 Seed stars Bank Ltd has issued R1 000 000 of commercial paper for R991 000 for 45 days. Based on this information and assuming 365 days per year, the effective annual rate of interest on the commercial paper would be … 1. 7.61%. 2. 6.29%. 3. 6.24% 4. 6.13%. QUESTION 19 On average, a firm sells R2 000 000 in merchandise a month. It always keeps the inventory equal to half of its monthly sales on hand. If this firm analyses its accounts using a 365-day year, what will the firm’s average age of inventory be? 1. 10.5 days 2. 15.2 days 3. 30.3 days 4. 182.5 days QUESTION 20 Triple Ltd has obtained a 180-day loan of R400 000 at an interest rate of 1.5% plus a prime rate of 16% payable at maturity. Assume a 365-day year. The firm will pay approximately … on the 180-day loan. 1. R13 325 2. R13 685 3. R34 521 4. R35 690