Full marks must be credited for each section if answers are provided with workings

Answers version 1

1. B
2. D

3. C
4. B
5. B
6. A
7. B
8. D
9. $80,000 adverse
$9,300 Favourable
10. D
11. A
12. 12% or 13% both correct
13. B
14. D
15. D
16. 0,51
17. A, D
18. D
19. A
20. B

21. (Full marks must be credited for each section if answers are provided with workings)

a)
1. Net present value
Time Cash flow”$ 10% factor Present value”$
0 (32.000) 1 (32.000)
1-15 5.000 7.606 38.030
Positive NPV 6.030

In view of the positive NPV, the project should be undertaken. (5 marks)

2. Internal rate of return (Full mark is credited, if another percentage is used for high rate)
The internal rate of return is calculated by finding a 15 year cumulative discount factors as follows;

Time Cash flow”$ 15% factor Present value”$

0 (32.000) 1 (32.000)
1-15 5.000 5.847 29,235
Negative NPV (2,765)
IRR=10%+(6030/6030+2765)*(15%-10%)= 13,4%=13%


IRR=13%
The project should be undertaken as the IRR exceeds the cost of borrowing (10%) (5 marks)


(b )
1. Book value of $2,000

This information does not affect the NPV as a book value is not a cash flow (5 marks)

2. Reduced project duration to ten years

Revised NPV calculation

Time Cash flow”$ 10% factor Present value”$
0 net investment (32.000) 1 (32.000)
1-10 net savings 5.000 6.145 30.725
Negative NPV (1.275)

The reduction in the project duration means that it is no longer worthwhile. (5 marks)

22. (Full marks must be credited for each section if answers are provided with workings)

a) Total cost of output from process
Total cost of output = 45,625 + 29,500 + 26,875 – (12,500 × 20% × 4) = 102,000 – 10,000= 92,000
(10 marks)
b) Profit per unit
Product NRV Joint cost allocated Total profit Profit per kilo
At split off
A 50,000 30,000 = 20,000 4 (20,000 ÷ 5,000 kilos)
B 100,000 60,000 = 40,000 10 (40,000 ÷ 4,000 kilos)
The profit per unit for product A is $4 and for B is $10. (10 marks)
WORKING
Joint costs to be allocated are $92,000 (value of output from the process) reduced by the income from the sale of Product C, the by product: = $92,000 – $2,000 = $90,000
Joint costs are allocated between the two joint products, A and B based on total net realisable value:
Product Final sales Further costs NRV Output Total
value per kilo to complete per kilo kilos NRV at split off A $20 $10 $10 5,000 50,000
B $25 0 $25 4,000 100,000 150,000
⇒ allocation of joint costs:
Product A: 50,000/150,000 × $90,000= 30,000
Product B: 100,000/150,000 × $90,000 = 60,000

23. (Full marks must be credited for each section if answers are provided with workings)

a)

	$'000
Sales receipts	820
Purchase payments	575
Overhead payments	95

Workings
Sales receipts = 860 + 45 – 85 = 820 (5 marks)
Purchase payments = 600 + 75 – 100 = 575 (5 marks)
Overhead payments = 100 + 40 – 45 = 95 (4 marks)
b)

	$
Receipts in March relating to January sales 21,000 × $30 × 60%	378,000
Receipts in March relating to February sales 22,000 × $30 × 1.04 × 40%	274,560
Total March receipts	652,560

(2 marks each)

c) D (2 marks)