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FIA FFM
–
December 2012 mock examinations
Section A: All questions are to be attempted.Question 1Which of the following statements is incorrect?
a.
Bill of exchange is a liquid instrumentb.
Bill of exchange is traded in money marketsc.
Bill of exchange is a contract signed between the drawer and draweed.
Bill of exchange is always immediately payable, once it is presented to the drawee.
Question 2
An investment instrument offers a nominal return of 4% per annum. Current inflation rate is at 3%.
Calculate the investment’s real rate of return
.
a.
0.97%b.
33%c.
1%d.
7%
Question 3Which of the following is/ are a feature(s) of bullet loan?
a.
Each instalment made comprise of an element of interest and principal repayment.b.
The loan principal is only made at the end of the loan term.c.
The amount of periodic repayment gradually increases over the loan tenure.d.
All of the above.
Question 4
Consideration is a price given in exchange for an offer.
Is the above true or false?
a.
Trueb.
False
FIA FFM
–
December 2012 mock examinations
Question 5
An investment offers a net present value of $12,000, when discount rate used is 10%. However,when the discount rate is increased to 20%, the net present value becomes -$4,000.
What is the internal rate of return?
a.
10%b.
12.5%c.
17.5%d.
23.3%
Question 6
An offer will lapse after a certain period of time.
Is this true or false?
a.
Trueb.
False
Question 7A relevant cost is _______.
a.
Opportunity cost
b.
Incremental cost
c.
Avoidable cost
d.
All of the above
Question 8
A 6% Treasury bill is currently trading at $111. It will mature by December 2013.
What is the interest yield of this Treasury bill?
a.
6%b.
5.4%c.
11%d.
17%
FIA FFM
–
December 2012 mock examinations
Question 9Which of the following methods do not take into account the time value of money?
a.
Accounting rate of returnb.
Net present valuec.
Internal rate of returnd.
Discounted payback period
Question 10
The following shows an extract of a company’s profit and loss account.
$Profit before interest 5000Less interest expense 1000Profit after interest 4000Less taxation 300Profit after tax 3700
Calculate the interest cover.
a.
5 timesb.
4 timesc.
3.7 timesd.
1 time
FIA FFM
–
December 2012 mock examinations
Section B: All questions are to be attempted.Question 1
Stockup Co specializes in production of component Z. This component Z is made using a special partY. Each unit of Z is made by using 2 units of Y. The demand for component Z is expected to be 50,000units per annum and will be constant for the next few years.This special part Y is currently purchased from Best Parts Co. Each order incurs a fixed charge of $30,while the cost of holding each unit is $0.20 per annum.In recent months, the procurement manager has found an alternative supplier for this special part.This alternative supplier is Other Best Co and they are also offering the same special part at thesame price. However, the cost of placing each order is $25, while cost of holding each unit is $0.15per annum. Holding costs are lower due to the redesigned compact packaging which comes witheach unit. However, this supplier requires a minimum order of 6000 units or more for each order.
=
2
ℎ
Required:
a.
Calculate the economic order quantity for component Y, based on the charges from BestParts Co.
(3 marks)b.
Calculate the annual cost of stocking up component Y, if orders continue to be placed withBest Parts Co and that orders will be made based on economic order quantity
. (3 marks)c.
Calculate the annual cost of stocking up component Y, if orders are to be placed withOther Best Co.
(3 marks)d.
Describe three other non-financial factors which have to be considered by Stockup Co inmaking the decision to change suppliers for component Z.
(3 marks)
e.
State the underlying three assumptions made in the economic order quantity (EOQ) model.
(6 marks)f.
Briefly explain the Just In Time inventory system.
(2 marks)
(20 marks)

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