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    2016 GMA 711s Test 1

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    Paulus
    The document is a test paper for a management accounting course consisting of two questions. Question 1 asks students to calculate rates of return, payback periods, and net present values for two investment projects, and discuss capital budgeting techniques. Question 2 provides financial information for a proposed property investment and asks students to calculate cash flows, net present value, internal rate of return, and discounted payback period to determine if the investment should be made.

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    2016 GMA 711s Test 1

    Uploaded by

    Paulus
    4 views4 pages
    The document is a test paper for a management accounting course consisting of two questions. Question 1 asks students to calculate rates of return, payback periods, and net present values for two investment projects, and discuss capital budgeting techniques. Question 2 provides financial information for a proposed property investment and asks students to calculate cash flows, net present value, internal rate of return, and discounted payback period to determine if the investment should be made.

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    The document is a test paper for a management accounting course consisting of two questions. Question 1 asks students to calculate rates of return, payback periods, and net present values for two investment projects, and discuss capital budgeting techniques. Question 2 provides financial information for a proposed property investment and asks students to calculate cash flows, net present value, internal rate of return, and discounted payback period to determine if the investment should be made.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4 views4 pages

    2016 GMA 711s Test 1

    Uploaded by

    Paulus
    The document is a test paper for a management accounting course consisting of two questions. Question 1 asks students to calculate rates of return, payback periods, and net present values for two investment projects, and discuss capital budgeting techniques. Question 2 provides financial information for a proposed property investment and asks students to calculate cash flows, net present value, internal rate of return, and discounted payback period to determine if the investment should be made.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    FACULTY OF MANAGEMENT SCIENCES

    DEPARTMENT ACCOUNTING, ECONOMICS AND FINANCE

    BACHELOR OF ACCOUNTING

    (23BACF)
    ________________________________________________________________________

    MANAGEMENT ACCOUNTING 310 (GMA711S)

    DATE: 10th March 2016


    DURATION: 2 Hours
    MARKS: 50
    TEST 1

    INSTRUCTIONS
    1. This test paper is made up of three (3) questions
    2. Answer ALL the questions and in blue or black ink
    3. Start each question on a new page in your answer booklet & show all your workings
    4. Questions relating to this test may be raised in the initial 30 minutes after the start of the
    paper. Thereafter, candidates must use their initiative to deal with any perceived error or
    ambiguities & any assumption made by the candidate should be clearly stated.

    REQUIREMENTS None

    EXAMINER: T F Mashoko, L E Wale MODERATOR: A Makosa

    This paper consists of 4 pages excluding this cover page


    Question 1 (25 Marks)

    The following data are supplied relating to two investment projects, only one of which may be selected:
    Project A Project B
    N$ N$
    Initial capital expenditure 500 000 500 000
    Profit (Loss ) Year 1 250 000 100 000
    2 200 000 100 000
    3 150 000 140 000
    4 100 000 260 000
    Estimated resale value at end of year 4 100 000 100 000

    Notes
    (1) Profit is calculated after deducting straight-line depreciation (20%).
    (2) The cost of capital is 10%

    Required:
    1) Calculate for each project:
    i) Average annual rate of return on average capital invested (2 marks)
    ii) Payback period (2 marks)

    iii) Net present value (4 marks)

    2) Briefly discuss the relative merits of the three methods of evaluation mentioned in (1) above
    (5
    marks)
    3) Explain which project you would recommend for acceptance. (1 mark)
    4) List and briefly describe each of the five stages in capital budgeting. (5marks)
    5) Identify and discuss the conditions under which the IRR technique and the NPV technique produce
    different results (2 marks)

    Page 1 of 2
    6) Discuss why capital budgeting decisions are the most important decisions made by a firm’s
    management. (4 marks)

    QUESTION 2 (25 marks)

    The Managing Director of Aus Vista Ltd has approached you for advice regarding a proposed new investment in
    a property. The following information pertains to the transaction:

    Purchase price N$870 000


    Estimated gross income: Year 1 N$461 800
    Year 2 N$376 000
    Year 3 N$280 000
    Year 4 N$131 005
    It is estimated that the property will have a sales value of N$82 000 after four years.

    Additional information:
    1. The managing director of the company has stated that he requires a rate of return of 15% per year on all
    new investments but the board of directors has agreed that any return of more than 13% would be
    satisfactory.
    2. The Income Tax Act in Namibia currently makes provision for the following:
     The tax rate on companies is 35%. (Use what is given to you)
     The capital allowance granted is 33⅓%.
     Losses sustained in any year may be claimed against the profits of the following year.

    Required:

    1.1 Compute the net cash flow during each of the four years. (10 marks)
    1.2 Compute the net present value (NPV) of the investment and advise the board of directors of the
    company as to whether this investment should be made or not. (8 marks)

    Page 2 of 2
    1.3 Compute the internal rate of return of the investment. (2 marks)
    1.4 Compute the discounted payback period of the property. (5 marks)

    End of paper

    Page 3 of 2

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