Graduate School of Business SOB 1040 Test 1 2022 Academic Year

Duration: 1 hour 40 Minutes

Instructions: Answer all questions

Question 1
Write A, B, C OR D depending on your choice of an answer
i. Simple interest will reduce to compound interest if:
(a) The rate of interest 𝑟 is equal to the interest rate per compounding period 𝑖
(b) Both formulae use the same principal
(c) The time for simple interest is given in years while that of compound interest is
given in months.
(d) None of the above.
1
ii. Consider these two sequences −5, −2, 1, . . . and 12, −4, 1 3,…. The main difference

between the two is:

(a) The first sequence can be solved via subtraction while the second could be solved
via addition and subtraction
(b) The second sequence could be regarded as an 𝐴𝑃 while the first sequence is a 𝐺𝑃.
(c) There is no difference because they are both sequences
(d) The 𝑛𝑡ℎ term in first sequence is given by 𝑎 + (𝑛 − 1)𝑑 while for the second
sequence it is given as 𝑎𝑟 𝑛−1.
iii. A supply chain is made up of:
(a) Raw materials suppliers ⇨ manufacturers ⇨ wholesalers ⇨distributors⇨ retailers
⇨ the consumer
(b) Manufacturer ⇨distributor ⇨ supplier ⇨ retailers ⇨ the consumer
(c) Manufacturer ⇨supplier ⇨distributors⇨ wholesaler ⇨retailers ⇨ the consumer
(d) Suppliers ⇨ manufacturers ⇨ wholesalers ⇨ retailers ⇨ the consumer

iv. An invoice is a document given to the seller in order to

(a) Keep track all records of a transaction.
(b) show the seller, buyer, items purchased, quantity, price, and any discounts
(c) show the shipping and insurance charges, and the invoice total, which is the sum of
the extension totals
(d) None of the above
 v. Which one of the following is true.
(a) 𝑛𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = 𝑙𝑖𝑠𝑡 𝑝𝑟𝑖𝑐𝑒
(b) −𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 = −𝑙𝑖𝑠𝑡 𝑝𝑟𝑖𝑐𝑒 + 𝑛𝑒𝑡 𝑝𝑟𝑖𝑐𝑒
(c) 𝑙𝑖𝑠𝑡 𝑝𝑟𝑖𝑐𝑒 = 𝑙𝑖𝑠𝑡 𝑝𝑟𝑖𝑐𝑒(1 + 1 − 1) + 𝑡𝑟𝑎𝑑𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡
(d) None of the above
vi. An invoice is issued on 18th April 2022 with terms 2/10 prox. Which one is the final
discount date?
(a) 28th April 2022.
(b) 18th May 2022.
(c) 20th April 2022
(d) 10th May 2022.
vii. Assume Game stores is given a list price and trade discount of K100 and 25%
respectively. What is the complement of the discount?
(a) K75
(b) K25
(c) 0.75
(d) 0.25
viii. All the following are false except?
(a) To have a markup of 100% or greater, the markup must be calculated on cost
(b) Mark up is inversely related to mark down.
(c) Markup on cost can never exceed 100%
(d) Mark up is used to stimulate sales volume
ix. Decide which of the following proportions are false.
69 7
(a) = 102.
320
6 30
(b) = 65.
13
423.88 330.6264
(c) = 13.35282.
17.119
1 1
1 5
2
(d) = 424
12

x. When computing net cost equivalency great care is need because

(a) The order of the discounts in the series matters
(b) The order of the discounts in the series makes no difference.
(c) The net cost equivalent is found by multiplying list price and the net cost.
(d) A 15/10/20 series is not identical to a 20/15/10 series
Question Two

Chalo and Nthochi are twins who co-own a small hardware business in Mtendere City of
Zambia that is valued at 𝑍𝑀𝑊2,300. They believe that their business will grow in value at
12% per year compounded annually for the next 5 years. If they sell the hardware, the funds
will be invested for 5 years at a rate of 6% compounded semi-annually. They expect inflation
to be 4% per year for the next 5 years. Round answers to the nearest 𝑍𝑀𝑊.

i. As a student of SOB 1040 draw up a recommendation that should guide Chalo and
Nthochi whether they should sell their business and invest the money for 5 years, or let
it grow for 5 years? Explain.
ii. Would the decision in (i) change if the hardware now grows at 2% per year for 5
years? Explain.
iii. What future value would the hardware be worth if it grew at their expected rate of
inflation? Find the price they should sell the hardware for if they wish to have the same
future value at the end of 5 years as the one obtained at a rate of inflation.

Question Three

Mwenda paid 𝐾40 for a blender. If operating expenses are 30% of cost and the blender is sold
for 𝐾50, find the

a) break-even point,
b) the amount of loss and then
c) present the information on a diagram.

Question Four

Masuku Investments Ltd is contemplating investing in mango juice production which requires
an initial outlay of K500. If they go ahead with the investment following are the expected cash
flows over the next four years.

Year 1 2 3 4
Cash flows 160 256 224 120
Required:

a) Compute the NPV at a discount rate of 10% per year.

b) State, giving a reason whether the investment is profitable or not.

End of Test 1