# LCCI International Qualifications

Series 4 2011 (3003)

Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com www.lcci.org.uk

7 8 8 A1 M1 A1 M1 A1 M1 M1 A1 A1r M1 A1 (Total 11 marks) 3003/4/11 Page 2 of 12 .3) (a) (b) Rate of interest =2. (1 mark) Based on the same proportional increase in the amount over the first and second halves of the year. (2 marks) On account C.5% √1. (c) On account B. (2 marks) (b) On accounts B and C. the rate of interest is 3% per half year. calculate the rate of interest for a 6-month period (compound interest method).2) (e) Index = 100 x (1.39 Syllabus Topic 8: Index numbers (8.05 = 1.£500 = £133.03) = £633. (2 marks) (Total 11 marks) (d) MODEL ANSWER TO QUESTION 1 Syllabus Topic 1: Simple and compound interest (1.QUESTION 1 On account A.385 = £133.03) = 126. based on a rate of interest of 3% per half year. the rate of interest is 5% per annum.2) and (1. (4 marks) (e) On account C. express the increase in value over 4 years as an index.385 Interest = £633. calculate the simple interest on £500 over a period of 4 years. (a) Based on dividing the amount of interest equally between the first and second halves of the year.385 .024695 Rate of interest = 2. calculate the compound interest on £500 over a period of 4 years.47% (c) (d) Simple interest = 3% x 2 x 4 x £500 = £120 Number of time periods = 2 x 4 = 8 Amount (principal + interest) = £500 x (1. based on a rate of interest of 3% per half year. state the rate of interest for a 6-month period (simple interest method).

QUESTION 2 Sinita bought unit trusts and invested for income. (2 marks) (Total 13 marks) MODEL ANSWER TO QUESTION 2 Syllabus Topic 2: Stock exchanges (2.744 / 560 = £17.0175 = 1.2% of the sum invested Fee on sale: 0.000 in a unit trust with an offer price of £75 per unit. and sold the units after 3 years at the same price.248 / £42.3%) + £525 = £735 Charges percent = £735 / £42.2% + 0.07733 = 7.744.744 / 3 = £3.000 = 0.75% Income net of fees = £9.4 Total charges = £42.7% (c) (d) (e) (f) Income per unit = £9.000 x (0.000 = 0. This income was not reinvested in units.3% of the sum received Fund management fees of £525 Calculate: (d) (e) (f) the total charges paid (2 marks) the total charges as a percentage of the original investment (2 marks) Sinita’s income net of fees.5) (a) (b) Number of units = £42. During this period she received income from the units of £9.000 / £75 = 560 Income per annum = £9.744 . (2 marks) Sinita had to pay the following charges: Fee on purchase: 0. She invested £42. Calculate: (a) (b) (c) the number of units purchased (2 marks) the percentage yield per annum (3 marks) the (3 year) income per unit.248 Percentage yield per annum = £3.£735 = £9.009 M1 A1 M1 M1 A1 M1 A1 M1A1 M1 A1 M1 A1 (Total 13 marks) 3003/4/11 Page 3 of 12 .

60 = £79.000 + £20.000 units = 12.3) (a) (b) (c) Selling price per unit of product = £66. Thomas draws a line through the points (0 units.60 Variable cost of manufacturing 12. £66.60 .000 Total cost of manufacturing 12.000 / £1.000 units. £70. he draws a straight line through the origin and the point (10.000 = £50.000 units (3 marks) the number of units manufactured and sold to achieve break-even.000 units = 12.000 = £5 (d) (e) Contribution per unit = £6. (2 marks) (Total 14 marks) MODEL ANSWER TO QUESTION 3 Syllabus Topic 3: Business ownership (3.000).000 units = £70.000 = £6.000 units.000 x £5 = £60.000 .000 Variable cost per unit = £50.000 = £80.000).000 x £6.000 units. To represent sales.000 / 10.000 / 10. Calculate: (a) (b) the selling price per unit of product (2 marks) the income from sales of 12. Calculate: (c) (d) (e) (f) the variable cost per unit (3 marks) the contribution per unit (2 marks) the total cost of manufacturing 12.£20.000 (f) Number of units for break-even = £20.200 Variable cost for manufacture of 10. (2 marks) To represent total manufacturing costs.500 units M1 A1 M1 A1 M1 M1 A1 M1 A1 M1 M1 A1 M1 A1 (Total 14 marks) 3003/4/11 Page 4 of 12 .QUESTION 3 Thomas draws a break-even chart.000) and (10. £20.2) and (3.60 = 12.000 units = £60.£5 = £1.60 Income from sales of 12.

QUESTION 4 The following information relates to a retailer’s business at the end of the first year of trading.600 Annual sales Annual purchases Sales returns Purchases returns Initial stock value Final stock value General expenses Postage Telephone & Internet Advertising Vehicle expenses Calculate: (a) (b) (c) (d) (e) the cost of goods sold (3 marks) gross profit as a percentage of net sales (3 marks) overhead expenses as a percentage of net sales (2 marks) the average length of time that items remained in stock. (2 marks) (Total 13 marks) 3003/4/11 Page 5 of 12 .980 2.650 8.360 540 1.030 8.590 3.000 14.305 12. £ 183. giving your answer in days (3 marks) the net profit.700 84.400 9.

885 = £99.650 + £8.000 .835 / 179.980 = £179.sales returns = £183.7% (d) Average stock = ½ x(£12.700 .030 + £8.3 = 60 days (e) Net profit = gross profit – overhead expenses = £99.£3.£14.885 (b) Net sales Gross profit = Annual sales .285 + £12.590 .000 + £14.600 = £28.720 = 15.200 / £79.2) and (4.720 .3) (a) Net purchases = Annual purchases – purchase returns = £84.200 Average time in stock = 365 x Average stock / COGS = 365 x £13.MODEL ANSWER TO QUESTION 4 Syllabus Topic 4: Profitability and liquidity (4.885 = 60.285 Cost of goods sold (COGS) = Net purchases + initial stock .£28.360 + £540 + £1.final stock = £82.400 = £79.835 M1 A1 M1 M1 M1 Gross profit as a percentage of net sales = 100% x Gross profit / Net sales = 100% x £99.720 = 55.180 = £71.655 A1 M1 M1 A1 M1 A1 (Total 13 marks) A1 M1 3003/4/11 Page 6 of 12 .6% (c) Total overhead expenses = Sum of five expenses = £9.180 / 179.835 .720 = Net sales – COGS = £179.305 = £82.400) = £13.£79.180 Overhead expenses as a percentage of net sales = O/H expenses / Net sales x 100% = 100% x £28.£2.

2).000 and a projected payback period of 3 years and 2 months. Calculate: (c) (d) the discount factor used for year 1 (2 marks) the rate of return used in the calculation.800 (-£68. (5.800 – (-£4. (3 marks) (Total 12 marks) MODEL ANSWER TO QUESTION 5 Syllabus Topic 5: Investment appraisal (5.865.800 (-£4.683 and an expected net present value for that year of £105.909 Inverse of discount factor = 1 / 0.800) at a rate of return of 9% and negative £68.000 = £10.000 (b) (c) (d) Net cash inflow = £105.000 = 0.000 Discount factor = £72.0885 = 8. (a) Calculate the expected net cash inflow for investment project A in year 4.5) (a) Still required to payback in year 4 = £100.000 Expected net cash inflow in year 4 = £10.683 = £155. (e) Calculate the internal rate of return.800) M1 M1 A1 M1 A1 M1 A1 M1 A1r M1 M1 A1 (Total 12 marks) 3003/4/11 Page 7 of 12 .85% -£68.800) at a rate of return of 11%.865 / 0.000 – 3 x £30. (b) Calculate the expected net cash inflow for investment project B for that year.800) – 0.909 = 1. (2 marks) In year 1.720 / £80.800) = 0. (2 marks) Investment project B has a total expected net present value of negative £4.4) and (5.000 x 12 months / 2 months = £60. The expected net cash inflow in the first 3 years is £30.QUESTION 5 Investment project A has a cost of £100. showing your workings.000 and an expected net present value of £72.1001 Rate of return = 10% (e) Internal rate of return = 0. investment project B has an expected net cash inflow of £80.11 x (-£4. (3 marks) Investment project B has a discount factor for a particular year of 0.09 x (-£68.720.000 per year.

400 by Trader X.500 + £26.280 + £26.500 x 0.2699 = 27% M1 A1 M1 A1 M1 A1 M1 M1 A1 M1 M1 A1 (Total 12 marks) 3003/4/11 Page 8 of 12 .16 = £18.000 = £246.750 (2 marks) the amount owed to an unsecured creditor who is paid £2.000 to secured creditors The expenses of winding up the business are £5.16 Creditor receives £5. who is declared bankrupt.280 Total assets = £35.500 = 0.000 Total paid to unsecured creditors = £220.184 in payment. Calculate: (a) (b) (c) the rate in the £ which is payable to unsecured creditors (2 marks) the amount received by an unsecured creditor who is owed £5.880 (2 marks) The total owed to unsecured creditors by Trader X is £220.260 = £66.260 (d) (e) Calculate the value of the trader’s assets achieved at liquidation.540 (e) Total liabilities = £220.3) and (6.000 + £5. (3 marks) (Total 12 marks) MODEL ANSWER TO QUESTION 6 Syllabus Topic 6: Bankruptcy (6.880 / 0.16 = £920 Owed to creditor = £2. (6.500 Assets / liabilities = £66.540 / £246.400 = £0.184 / £7. Ursula finds she is an unsecured creditor and eventually receives only £1.QUESTION 6 Ursula is owed £7. (3 marks) Express this value of the assets as a percentage of the liabilities before liquidation.750 x 0.500 He also owes £26.16 = £35.2).4) (a) (b) (c) (d) Rate in the £ = £1 x £1.

400.750.000 Scrap value = £1.000 = 0.000 3 M1 M1 A1 M1 A1 M1 A1 M1 A1 M1 A1 M1 A1 (Total 13 marks) 3003/4/11/MA Page 9 of 10 © Education Development International plc 2011 .000 Depreciation in each of the first 3 years = £1. Depreciation for the first 3 years is calculated on the basis of the equal instalment method.£700.000 . with an annual rate of depreciation of 40% of the machine’s value at the start of that year.950.000. Calculate: (d) (e) (f) the amount of depreciation for year 4 (2 marks) the book value after 4 years (2 marks) the scrap value after 6 years.700. Calculate: (a) (b) (c) the amount of depreciation each year (3 marks) the book value after 2 years (2 marks) the first year depreciation as a percentage of the original cost.000 First year depreciation percent = £650.2) and (7.750.700.000 / 3 = £650. The value of the machine after 3 years is estimated to be £1.000 = £2.750.700.£1.000 – 2 x £650.050.000 (b) (c) (d) (e) (f) Book value after 2 years = £3.000 .750.000 Book value after 4 years = £1.000 = £700.700.950.6% Depreciation during year 4 = 40% x £1. (2 marks) (Total 13 marks) MODEL ANSWER TO QUESTION 7 Syllabus Topic 7: Depreciation of Business Assets (7.000 x 0.3) (a) Depreciation over the first 3 years = £3.000 / £3.6 = £378. From that point onward.000 is expected to have a life of 6 years.000 = £1.750.QUESTION 7 A factory machine that costs £3.000 = £1.1757 = 17. depreciation is calculated on the basis of the diminishing balance method. (2 marks) After 3 years the method of depreciation is changed.

over the four-year period. B and C. (2 marks) (c) MODEL ANSWER TO QUESTION 8 Syllabus Topic 8: Index numbers (8. B and C are as above. with each increase expressed as an index. (5 marks) Working on the basis of simple interest.870 57. together with a fourth investment D.620 12.55 = 145 (b) New total weighting = 400 + 50 = 450 New total (Weight x Index) = 450 x 141. W x I = 63.820 = 5.6.4) (a) Investment A B C Index 154 145 130 Totals Weighting 145 156 99 400 WxI 22.820 M1 M1 M1 M1 A1 M1 M1 M1 M1 A1 Weighted index = 57.6 = 63. as shown in the following table: Investment A B C (a) Index 154 145 130 Weighting 145 156 99 Calculate the composite (weighted) index for the three investments combined.900 Index of investment D = 5. B and C. the weighted index of the four investments combined is 141. The weightings of investments A. and the weighting of investment D is 50.330 22. 156 and 99 respectively. A.5% M1 A1 (Total 12 marks) 3003/4/11/MA Page 10 of 10 © Education Development International plc 2011 .820 / 400 = 144. calculate the percentage increase per annum in investment A over the period.720 For investment D.2) (c) Percentage increase = (154 – 100) % / 4 = 13. Over the same period. Over a period of 4 years they increase in value.720 – 57.QUESTION 8 Three investments. A. (b) Calculate the index representing the increase in value of investment D. are grouped into a single fund with weightings of 145. (5 marks) A second fund includes the same three investments.900 / 50 = 118 Syllabus Topic 1: Simple and compound interest (1.

com (Total 12 marks) 3003/4/11/MA Page 11 of 10 © Education Development International plc 2011 .com www. enquiries@ediplc. +44 (0) 8707 202909 Fax. +44 (0) 2476 516505 Email.EDI International House Siskin Parkway East Middlemarch Business Park Coventry CV3 4PE UK Tel.ediplc.