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E1. You are an A quality borrower, and you pay 10 percent on a five-year loan with one final amortization at the end. This is 1 percent above the spread paid by an AAA borrower. What will be the up-front fee for which your bank should be willing to lower the rate by 1 percent?E8. The six- and nine-month interest rates are 10 percent and 1 1 percent p.a., respectively. (a) What is the current six-to-nine forward interest rate? (b) What is the forward price of a six-month (= 71) forward contract on a nine-month (= T,) CD? (c) What is the futures quote (ignoring effects of marking to market)? (d) If the underlying CD has a face value of USD 10,000, what is the marking-to-market cash flow when the six- and nine-month interest rates both increase by 0.5 percent?3. The following is true about chronic hunger in the world: a. About 1 billion people suffer from chronic hunger and most of these people are engaged in farm work b. About 1 billion people suffer from chronic hunger and most of these people live in urban areas c. About 3 billion people suffer from chronic hunger and most of these people are engaged in farm work d. About 3 billion people suffer from chronic hunger and most of these people live in urban areas c. None of the above statements is correct 4. A major argument for the use of biotechnology is a. in genetic engineering, which increases biodiversity b. in low-income countries, where the benefits are most likely to exceed risks c. in tissue culture, where the risks are small d. Both a and c are correct e. Both b and c are correct 5. Daly and Cobb's Index of Sustainable Economic Welfare (ISEW) per capita for the United States a. fell for about two centuries, then rose from 1976 to 1992 b. fell for the two centuries through 1992 c. rose for about two centuries, then declined from 1976 to 1992 d. rose for the two centuries through 1992 6. Daly and Cobb's Index of Sustainable Economic Welfare (ISEW) per capita a. adds environmental damage and resource depletion to gross product b. adds the import of goods and services from abroad to gross product c. subtracts environmental damage and resource depletion from gross product d. subtracts the gain of leisure time from gross product e. subtracts the services of government capital from gross product 7. For Daly, the limiting factor in economic development is a. entrepreneurship b. human skills c. natural capital d. physical capital 8. In the video on "GNP and the Index for Sustainable Economic Welfare (ISEW)," Martin Evers, a critical student, a indicated a better numerical measure of the quality of life b. indicated that environmental jobs are the fastest growing job category in the US c. indicated that scholars know how the economy and environment interact d. objected to measuring welfare in economic terms 9. In the video, Daly advocated investing part of the profit from the exploitation of non-renewable resources in a mining b. new capital equipment c. non-renewable substitutes d. renewable substitutes 10. The business people (for example, from Volkswagen and ABB), in the video, "Greenbucks: The Challenge of Sustainable Development," advocated cleaner technology, "green cotton," and recyclable cars, through a growing realization of the earth's limits b. investing in alternative energy c. taxes so businesses pay for negative externalities d. both a and b e. both b and c 11. Daly's impossibility theorem contends that a humans are already using almost 100 percent of the earth's net primary productivity b. increases in population will stimulate future economic growth c. non-renewable resources prevent the world attaining US consumption levels d. the stock of mineral deposits is adequate for rapid economic growthE10. Use the same data as in the previous exercise, except that you now swap the loan into floating-rate (at FIBOR). What are the payments on the loan, on the swap, and on the combination of them? Is there a gain if you could have borrowed DEM at FIBOR + 1 percent?5. a ) Explain the Accruals ( or Matching) Concept in relation to the financial accounts and statements of a business. (4 marks) b) A business information report has been obtained on Lucrative Prospects Ltd, a new sales lead. Your Sales Manager is naturally keen that credit terms can be agreed as soon as possible, and is very interested to learn what the data in the report means and how it helps with the account opening decision. TASKS for part b) Explain the usefulness of each of the following ratios in reviewing the performance of a business: Current Ratio (2 marks) ii) Acid Test Ratio (2 marks) iii ) Receivables Collection Period (2 marks) iv) Payables Settlement Period (2 marks) V) Inventory Turnover Rate (2 marks) c) The following data has been extracted from the business information report for Lucrative Prospects Ltd. Analyse the changes for each between 2015 and 2016, showing the potential impact upon Lucrative Prospects Ltd in general and making reference to its management of its working capital in particular. (6 marks) Business Information Report (extract) on Lucrative Prospects Limited Ratio Calculated 2016 2015 Current Ratio 2.5:1 2.2:1 Acid Test Ratio 0.7:1 1.1:1 Receivables Collection Period 49.5 days 33.3 days Payables Settlement Period 24.8 days 28.7 days Inventory Turnover Rate 80.7 days 63.5 days Total 20 marks5. Jazzy Books DAC produces a range of notebooks and diaries that are sold exclusively online via the company's website. Customers have the opportunity to personalise their purchase by selecting designs for the front and back covers of the notebooks or diaries. The company currently uses a traditional overhead absorption costing system based on machine hours to allocate manufacturing overheads to products. This year, the company recorded a loss in its financial statements for the first time since it commenced trading six years ago. The managing director is very concerned and has suggested that the prices of all products should be increased by 25%. However, the management accountant has suggested that the problem relates to overhead allocation. He has argued for the adoption of activity based costing. Activity based cost information obtained for the company shows that customers place individual orders and then discuss the design of the notebooks or diaries using emails. The artwork costs depend on the number of setups required to compile the notebook or diary. In addition, the company has a policy of despatching each order individually. Financial information relating to the most recent trading period and two orders recently received are provided below. Overhead costs Ordering costs 67,200 Design expenses E 28,500 Artwork 17,250 Despatch costs E 10,800 Activity drivers Total orders received 48,000 Total design consultation emails 356,250 Total artwork setups 1 15,000 Total packets despatched 90,000 Total machine hours 21,250 Details of two orders received Order reference Notebook KJ34 Diary XT501 Direct materials - paper, binding, etc. 61.86 61.24 Direct labour 60.52 30.68 Machine hours required 0.20 0.30 Number of design consultations 5 Number of artwork setups required 4 REQUIREMENT: (a) Calculate the cost of each of the orders received using: The existing overhead allocation method; (ii) Activity based costing (ABC). (15 marks) (b) Comment briefly on your answers at (a) (i) and (ii) above. (3 marks) (c) Outline TWO disadvantages of ABC. (2 marks) [Total: 20 Marks]6. Nutty Fresh DAC, based in Limerick, commenced operations five years ago and produces a range of healthy muesli snack bars for the retail market. The company uses a process costing system based on the weighted average method to value production and inventory. Manufacturing comprises two simple processes: mixing and finishing. In the mixing process, the various ingredients are combined thoroughly and then transferred to the finishing process. In the finishing process the mixed ingredients are moulded into bars and cooked to create the finished product. All ingredients are added at the start of the mixing process and no additional ingredients are added in the finishing process. Labour and production overheads, also called conversion costs, are incurred evenly throughout both processes. Details relating to the company's most popular product, the Nut Crunch bar, for the most recent financial period are shown below: Mixing Finishing Opening inventory 60,000 Kgs 25,000 Kgs Degree of completion 40% 30% Previous process costs ( 11,500 Materials ( 15,000 Conversion costs E 10,625 (2,750 Input during the period to the process 160,000 Kgs Materials 8 38,400 Conversion costs E 30,220 ( 20,650 Completed and transferred 175,000 Kgs 185,000 Kgs Closing inventory 35,000 Kgs 10,000 Kgs Degree of completion 50% 50% Note: A normal loss of 5% of the materials input (during the period) to the mixing process is expected. Any waste material from the mixing process can be sold to a local farmer for 60.05 per Kg. REQUIREMENT: Prepare the following accounts, where applicable, for the most recent financial period. You should ensure that all workings are shown clearly: (1) Mixing process account (ii) Finishing process account (iii) Normal loss account iv Abnormal loss/Abnormal gain account