Question

QUESTION 1 MARKS: 10 Multiple choice 1. What is the name of the amount of funds to which interest is paid?

a) The principal

b) The annuity

c) The Compound

d) Cash flow

2. Which of the following statement is not correct?

a) Time value for money is the concept states that an amount of money today is worth more that it will be at some point in future.

b) Inflation refers to a continuous rise in the general level of prices of goods and services.

c) Time value of money is the same as the decrease in purchasing power of as result of inflation.

d) Discounting calculations involve the calculation of present values.

3. A teacher invests some money for 1 year and expects to receive N$ 1 000 at interest rate of 16%. Calculate the amount the teacher must invest today.

a) N$ 1160

b) N$ 840

c) N$ 862.07

d) N$ 826.07

4. Which of the following is not a discounted cash flow technique?

a) Net present value (NPV)

b) Profitability Index

c) Internal rate of return

d) Payback period

5. Which of the following cannot be referred to as the rate used for discounting cash flows?

a) Net present value

b) Discount rate

c) Opportunity cost

d) Cost of capital

6. Calculate the weighted average cost of capital from the information below:

Form of capital

Weight

After tax cost

Long term debt

40%

6%

Preference Share

10%

11%

Ordinary Shares

50%

15%

a) 33.33%

b) 10.67%

c) 11%

d) 100%

7. Which of the following is not a characteristic of the Industry?

a) Competitive forces

b) Seasonal variation

c) Stages in life cycle

d) Creditworthiness

8. Credit standards refer to:

a) Terms required for all credit customers.

b) Limit of credit granted to a customer.

c) The different procedures that a firm uses to collect accounts receivable.

d) The minimum requirements for extending credit to a customer.

9. Calculate the cash conversion cycle of a firm whose Average Age of Inventory (AAI) is 10 days, Average Collection Period (ACP) is 90 days and Average Payments Period (APP) is 30 days.

a) 130 days

b) 100 days

c) 70 days

d) 80 days

10. Which of the following long-term financing methods is interest free?

a) Debentures

b) Bonds

c) Equity

d) Mortgage.

Part 2: Section B

Question 1 10 marks

a) Explain what you understand by the phrase present value of a mixed stream? (3)

b) Calculate the present value of the mixed stream of Nawa Trading if a minimum return of 15 % can be earned. Use the appropriate interest factor

Year

1

2

3

4

5

Cash inflow

N$ 10 000

N$ 12 000

N$ 9 000

N$ 10 000

N$ 10 500

Interest factor 15% Year

1

2

3

4

5

PVIF

0.870

0.756

0.658

0.572

0.497

FVIF

1.150

1.323

1.521

1.749

2.011

Question 2 11 marks

a) Name 2 basic approaches to making capital budgeting decisions (2)

b) Explain briefly each approach ( 6)

c) What are the disadvantages of the payback period as capital budgeting technique? (3)

Question 3 11 marks

a) What is the other name of financial leverage? (1)

b) What is the aim of financial leverage? (3)

c) List 7 consideration that one should take w