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NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JUNE 2013 EXAMINATION

Course Code: MBF 848                                                       Credit Unit: 2.

Course Title: ADVANCED EVALUATION METHOD

Time Allowed: 2 Hours.

Instructions: 1. Attempt Question 1 and any other two (2) Questions.

                       2. Question 1 is compulsory and carries 30 marks

                           while the other 2 Questions carry 20 marks each.

                      3. Present all your points in coherent and orderly manner.

 

     1.   a. List the FOUR classifications of Accounting Ratios known to you. 

                                                                                                             5 MARKS                                                                     

b. You are to study the following two furniture stores belonging to Saka  and Olu and the answer the questions which follow.

FINANCIAL STATEMENTS

                                                                          SAKA                                           OLU

                                                                  N’000       N’000                     N’000         N’000

Income Statements

                  Sales                                                                         555                                              750

                  Less Cost of goods sold

                           Opening inventory                       100                                          80

                            Add Purchases                             200                                         320

                                                                                   300                                         400

                            Less Closing inventory               (60)        (240)                        (70)             (330)

                  Gross profit                                                            315                                               420

                  Less  Depreciation                                    5                                           15

                            Wages and Salaries                    165                                         220

                            Other expenses                             45        (215)                         35               (270)

                 Net profit                                                                 100                                               150

 

               Balance Sheets

                Non-current assets

                      Equipment at cost                            50                                            100

                       Less Depreciation to date             (40)            10                           (30)               70

                Current assets

                      Inventory                                           60                                              70

                      Account  receivable                       125                                            100

                      Bank                                                   25            210                           12.5             162.5

                 Total  assets                                                           220                                                252.5

           Current liabilities                         

               Account payable                                                  (104)                                                 (100.5)  

                                                                                                                                                                                        

              Net assets                                                                116                                                    152

                                                                                              

                                   

             Financed by:

             Capitals

                   Balance at start of year                                     76                                                      72

                    Add    Net profit                                               100                                                    150                                                

                                                                                                176                                                    222

                   Less Drawings                                                    (60)                                                    (70)

                                                                                                116                                                    152                              

        

Required:

  1. Calculate the following ratios for each business:
  1. Gross profit percentage;
  2. Net profit percentage;
  3. Expenses as percentage of sales;
  4. Inventory turnover;
  5. Net profit on Capital employed(use average of the capital a/c);
  6. Current ratio;
  7. Acid test ratio;
  8. Accounts receivable/sales ratio;
  9. Accounts payable/purchases ratio.

                                                                                                                      20 MARKS

  1. Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for Saka and Olu. Which business seems to be the most efficient? Give possible reasons.

                                                                                                                                               5 MARKS

                  

                                                

          

  1. a. Define the Asset Conversion Cycle.

                                                                                                   5 MARKS

b. Explain the basic steps in the Asset Conversion Cycle.

                                                                                                            15 MARKS

  

3.  a. List the Traditional Criteria of Capital Investment Decision.  2 MARKS

     

     b.  Ogba Limited having a project which involves immediate cash outlay of        N200,000.00. The company estimates that the net cash inflows from the project      will be as follows:

 

Year                  Cash flow (N)

  1                        20,000.00

  2                        40,000.00

  3                      220,000.00

  4                         80,000.00

Calculate the payback period for the above project.

                                                                                                           14 MARKS  

 c. State the Decision Rule for this method of Investment Decision. 4 MARKS

 

 

 

4.  a. How would you measure a firm’s cost of retained earnings or equity?

                                                                                                                          5 MARKS                  

     b. You are given the following capital structure of a firm.

 

          Source of Finance                                 Amount (N)             Proportion

         Equity share capital                               2,250,000                        45%

         Retained Earnings                                     750,000                         15% 

         Preference share capital                          500,000                         10%  

         Debt issues                                              1,500,000                         30%

                                                                            5,000,000                        100%

 

     The firm’s after-tax component cost of the various sources of finance are as     

      Follows:

         Source                                                 Cost

          Equity share capital                          15%

         Retained Earnings                              12% 

         Preference share capital                   10%  

         Debt issues                                             8%                                                              

 

       Determine the firm’s Weighted Average Cost of Capital [WACC].

                                                                                                                          15 MARKS

 

 

  5.  a. List the 5 stages of a Project Cycle.                                    5 MARKS

       b. Discuss all the stages listed in (a).                                     15 MARKS


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