BUSINESS STUDIES

FACULTY
ACCOUNTING
DEPARTMENT
FINANCIAL MANAGEMENT
SUBJECT
FM23
SUBJECT CODE

DATE 5TH APRIL 2023

DURATION 1 .45 HOURS MARKS 50

TEST 1

Examiner: Mr. Ayoub W. Timba

INSTRUCTIONS
1. Work in an orderly way and present your work as neatly as possible.
2. While most of the marks will be awarded for content, candidates
must bear in mind the importance of presentation, i.e. insight and
critical thinking.
3. Number your answers correctly and clearly.
4. This paper consists of 2 pages including this cover page.
5. All questions are compulsory.
Instructions:

1. Read all the questions carefully before answering.

2. Number the answers clearly.

QUESTION 1 TOTAL: 25 MARKS

From the following Balance Sheets of Exe Ltd. make-out Cash Flow Statement:

Additional Information:
a) Depreciation of Rs. 5,000
b) An interim dividend of Rs. 10,000 has been paid in 2004.

QUESTION 2 TOTAL: 25 MARKS

Anderson Ltd has a limited capital budget available for investment in suitable projects
this year, and has short-listed two possible choices. Details are as follows:
Project A Project B
Capital cost £2,400,000 £2,700,000
Expected life 5 years 5 years
Residual value nil nil
Budgeted cash inflows: £000 £000
Year 1 190 310
Year 2 900 1,000
Year 3 1,200 1,300
Year 4 700 500
Year 5 400 200
The cost of capital to LBW Ltd is 10%
TASKS
a) Calculate the payback period for EACH project. [4]
b) Calculate the accounting rate of return for EACH project. [5]
c) Calculate the NPV for EACH project. [9]
d) State which project you would recommend (if any). [2]
e) Explain why it is important to use investment appraisal techniques, and to
monitor actual results. [5]

END OF TEST.