FIN3702 EXAM
PACK 2023
UPDATED QUESTIONS
AND ANSWERS
, FIN3702
CONFIDENTIAL January/February 2022
SECTION A: MULTIPLE-CHOICE QUESTIONS [30 MARKS]
1. All the following are inflows of cash EXCEPT …
1. a decrease in accounts receivable.
2. net profits after tax.
3. dividends.
4. an increase in accruals.
2. All the following are operating cash flows EXCEPT ...
1. net profit/earnings after taxes.
2. an increase or decrease in current liabilities.
3. an increase or decrease in non-current assets.
4. a depreciation expense.
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%
4. If a firm increases its current assets relative to its total assets, it …
1. increases return and reduces risk.
2. increases return and increases risk.
3. reduces return and increases risk.
4. reduces return and reduces risk.
5. A firm has just ended the calendar year by making a sale in the amount of
R200 000 of merchandise purchased during the year at a total cost of
R150 500. Although this firm paid in full for the merchandise purchased during
the year, it has yet to collect at year end from the customer. One possible
problem this firm may face is ….
1. low profitability.
2. insolvency.
3. inability to receive credit.
4. high leverage.
Page 3 of 19
, FIN3702
CONFIDENTIAL January/February 2022
6. Ignoring costs and other effects on the firm, which one of the following would
tend to reduce the cash conversion cycle?
1. Maintaining the level of receivables as sales decrease.
2. Buying more raw materials to take advantage of price breaks.
3 Forgoing discounts that are currently being taken.
4. Offering longer deferral period to customers.
7. The most common form of cash disbursements are …
1. cash purchases, dividends and accounts payable.
2. cash purchases, dividend and interest income.
3. dividend income, cash sales and accounts payable.
4. cash sales rent and accounts payable.
8. In general, firms that are subject to a high degree of …, relatively short
production cycles, or both tend to use shorter planning horizons.
1. financial certainty
2. operating uncertainty
3. financial planning
4. profitability
9. A firm has actual sales in November of R1 000 and projected sales in December
and January of R3 000 and R4 000 respectively. The firm makes 10% of its
sales for cash, collects 40% of its sales one month following the sale, and
collects the balance two months following the sale. The firm’s total expected
cash receipts in January are …
1. R 700.
2. R1 900.
3. R2 100.
4. R6 100.
10. In April a firm had an ending cash balance of R350 000, while in May the firm
had total cash receipts and total cash disbursements of R400 000 and
R500 000 respectively. At the end of May the financial manager confirmed that
the company would have to borrow an additional R200 000 to manage its
monthly cash flow. Given this information, the company maintains a monthly
cash float of …
1. R250 000.
2. R350 000.
3. R450 000.
4. R600 000.
Page 4 of 19
, FIN3702
CONFIDENTIAL January/February 2022
11. A firm plans to depreciate a five-year asset in the next planning period. The
statements that will be directly affected immediately after this action are ...
1. pro forma income statement, pro forma balance sheet and cash budget.
2. pro forma balance sheet, cash budget and statement of retained earnings.
3. pro forma income statement and pro forma balance sheet.
4. cash budget and pro forma balance sheet.
12. A firm has sales of R1 000 000, operating profit of R100 000, an interest
expense of R50 000, a depreciation expense of R30 000 and a tax rate of 30%.
This firm’s net operating profit after tax (NOPAT) will be …
1. R 35 000
2. R 70 000
3. R100 000
4. R700 000
13. During 2014, Moodley Ltd had an EBIT of R100 000, a change in net fixed
assets of R400 000, an increase in net currents assets of R100 000, an
increase in spontaneous current liabilities of R400 000, a depreciation expense
of R50 000 and a tax rate of 30%. Based on this information, Moodley Ltd.’s
free cash flow will be equal to …
1. -R 30 000
2. -R 50 000
3. -R 80 000
4. -R630 000
14. A firm has notes payable of R1 546 000, long-term debt of R13 000 000, and a
total interest expense of R1 300 000. If the firm pays 8% interest on its long-term
debt, what rate of interest does it pay on its notes payable?
1. 8.20%
2. 13.10%
3. 15.30%
4. 16.80%
15. Under the straight line method of depreciation, an asset that originally cost
R150 000 and incurred installation costs of R35 000, has a residual value of
R25 000 and is being depreciated over a five (5) year period, will have an annual
depreciation expense equal to …
1. R17 000.
2. R25 000.
3. R32 000.
4. R37 000.
Page 5 of 19
PACK 2023
UPDATED QUESTIONS
AND ANSWERS
, FIN3702
CONFIDENTIAL January/February 2022
SECTION A: MULTIPLE-CHOICE QUESTIONS [30 MARKS]
1. All the following are inflows of cash EXCEPT …
1. a decrease in accounts receivable.
2. net profits after tax.
3. dividends.
4. an increase in accruals.
2. All the following are operating cash flows EXCEPT ...
1. net profit/earnings after taxes.
2. an increase or decrease in current liabilities.
3. an increase or decrease in non-current assets.
4. a depreciation expense.
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%
4. If a firm increases its current assets relative to its total assets, it …
1. increases return and reduces risk.
2. increases return and increases risk.
3. reduces return and increases risk.
4. reduces return and reduces risk.
5. A firm has just ended the calendar year by making a sale in the amount of
R200 000 of merchandise purchased during the year at a total cost of
R150 500. Although this firm paid in full for the merchandise purchased during
the year, it has yet to collect at year end from the customer. One possible
problem this firm may face is ….
1. low profitability.
2. insolvency.
3. inability to receive credit.
4. high leverage.
Page 3 of 19
, FIN3702
CONFIDENTIAL January/February 2022
6. Ignoring costs and other effects on the firm, which one of the following would
tend to reduce the cash conversion cycle?
1. Maintaining the level of receivables as sales decrease.
2. Buying more raw materials to take advantage of price breaks.
3 Forgoing discounts that are currently being taken.
4. Offering longer deferral period to customers.
7. The most common form of cash disbursements are …
1. cash purchases, dividends and accounts payable.
2. cash purchases, dividend and interest income.
3. dividend income, cash sales and accounts payable.
4. cash sales rent and accounts payable.
8. In general, firms that are subject to a high degree of …, relatively short
production cycles, or both tend to use shorter planning horizons.
1. financial certainty
2. operating uncertainty
3. financial planning
4. profitability
9. A firm has actual sales in November of R1 000 and projected sales in December
and January of R3 000 and R4 000 respectively. The firm makes 10% of its
sales for cash, collects 40% of its sales one month following the sale, and
collects the balance two months following the sale. The firm’s total expected
cash receipts in January are …
1. R 700.
2. R1 900.
3. R2 100.
4. R6 100.
10. In April a firm had an ending cash balance of R350 000, while in May the firm
had total cash receipts and total cash disbursements of R400 000 and
R500 000 respectively. At the end of May the financial manager confirmed that
the company would have to borrow an additional R200 000 to manage its
monthly cash flow. Given this information, the company maintains a monthly
cash float of …
1. R250 000.
2. R350 000.
3. R450 000.
4. R600 000.
Page 4 of 19
, FIN3702
CONFIDENTIAL January/February 2022
11. A firm plans to depreciate a five-year asset in the next planning period. The
statements that will be directly affected immediately after this action are ...
1. pro forma income statement, pro forma balance sheet and cash budget.
2. pro forma balance sheet, cash budget and statement of retained earnings.
3. pro forma income statement and pro forma balance sheet.
4. cash budget and pro forma balance sheet.
12. A firm has sales of R1 000 000, operating profit of R100 000, an interest
expense of R50 000, a depreciation expense of R30 000 and a tax rate of 30%.
This firm’s net operating profit after tax (NOPAT) will be …
1. R 35 000
2. R 70 000
3. R100 000
4. R700 000
13. During 2014, Moodley Ltd had an EBIT of R100 000, a change in net fixed
assets of R400 000, an increase in net currents assets of R100 000, an
increase in spontaneous current liabilities of R400 000, a depreciation expense
of R50 000 and a tax rate of 30%. Based on this information, Moodley Ltd.’s
free cash flow will be equal to …
1. -R 30 000
2. -R 50 000
3. -R 80 000
4. -R630 000
14. A firm has notes payable of R1 546 000, long-term debt of R13 000 000, and a
total interest expense of R1 300 000. If the firm pays 8% interest on its long-term
debt, what rate of interest does it pay on its notes payable?
1. 8.20%
2. 13.10%
3. 15.30%
4. 16.80%
15. Under the straight line method of depreciation, an asset that originally cost
R150 000 and incurred installation costs of R35 000, has a residual value of
R25 000 and is being depreciated over a five (5) year period, will have an annual
depreciation expense equal to …
1. R17 000.
2. R25 000.
3. R32 000.
4. R37 000.
Page 5 of 19
