[Ina]

Thank you very much, John! Your answers are very helpful. We like to complicate our lifes, but in fact the calculations are very simple… 🙂

I’m doing now MCQ and I have one more question… 🙂

LJM Co is considering investing in new project which will cost $160,000. It has an expected life of 4 years and an expected scrap value of $20,000. The anticipated net operating cash flows each year are as follows:

Year 1: 40,000
Year 2: 60,000
Year 3: 80,000
Year 4: 20,000

The cost of capital is 10% p.a.

What is the Accounting Rate of Return (ARR) of the investment?

1. 9.38%
2. 16.67%
3. 55.56%
4. 21.43%

And how it was calculated?

Thank you very much!
Ina.

[Ina]

and one more question:

3. A company has agreed to lease a machine for a period of 8 years, with equal annual payments payable at start of each year.

The NPV of the agreement at a rate of 10% is $52 000.

What is the annual lease payment (to the nearest $)?

My calculation is: 52 000 / 5.335 (from annuity table the amount from discount rate 10% and period 8) and the result is $9 747, but the correct answer is $8 862. Why?

Thank you very much!
Ina.

[Ina]

Thank you, John!

Can you, please, help me with the other 2 questions:

1. A company has sales of $200M per year.
Currently customers take on average 40 days to pay.
The company is considering offering a discount of 1% for payment within 15 days and expects that 60% of customers will take advantage of the discount.

What is the effective annual cost of offering the discount?

The correct answer is: 15.8%.

I’ve calculated that there is a benefit from decrease in trade receivable days, that brings lower trade receivables by $8 220 and there is an additional cost from 1% discount that is equal to $ 1200. How to calculate the annual cost of offering the discount?

and

3. R plc has in issue $400 000 8% bonds, redeemable in 5 years time at a premium of 10%. Investors require return of 12% p.a.
The rate of corporation tax is 35%.

What is the total market value of the debt in issue?

the correct answer is $364 840.

How was calculated that?

Thank you!
Regards,

Ina.

[Ina]

Thank you very much, Aleksanders!

I’m still confused with the formula, can I find it somewhere in study or practice text?

Thank you!
Ina.

[Ina]

sorry, I found out the answer to question 1, it was replied above to vipulv.
I have one more question:

3. R plc has in issue $400 000 8% bonds, redeemable in 5 years time at a premium of 10%. Investors require return of 12% p.a.
The rate of corporation tax is 35%.

What is the total market value of the debt in issue?

the correct answer is $364 840.

How was calculated that?

Thank you very much!
Waiting for your reply.

Regards,
Ina.

[Ina]

Hello,

can you please help me. There are 2 questions in MCQ, that I don’t know how the results were got:

1. RI Co has in issue 6% redeemable bonds, quoted at 120% ex int.
Which of the following statements is consistent with the above information:

The correct answer is Interest yield 5%; redemption yield 4%.

How it was calculated?

2. A company has sales of $200M per year.
Currently customers take on average 40 days to pay.
The company is considering offering a discount of 1% for payment within 15 days and expects that 60% of customers will take advantage of the discount.

What is the effective annual cost of offering the discount?

The correct answer is: 15.8%.

I’ve calculated that there is a benefit from decrease in trade receivable days, that brings lower trade receivables by $8 220 and there is an additional cost from 1% discount that is equal to $ 1200. How to calculate the annual cost of offering the discount?

Thank you very much!
Ina.

[Ina]

Hello, Ahmed!

Maybe the answer to question 5 b) Receivable from Past exam 8 December 2011 will help.

The idea is that even if the information was received after the year end, but it provides further evidence of the recoverability of the receivable balance at the year end.. Under IAS 10 Events after the Reporting Period, if the customer is experiencing cash flow difficulties just a few months after the year end, then it is highly unlikely that the amount was recoverable as at the year end.

Hope it helps!

Ina

[Author]

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