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Information Regarding Proposed Investments in Projects

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I) Information regarding a proposed investment in a project is given.
estimated life of project: 5 years
cost of machine: $90 000
estimated proceeds of disposal of machine after5 years: $10,000
additional working capital required throughout the project: $30 000
additional annual revenue (net): $15 000
What will be the accounting rate of return on the project?

A 13.6%
B 21.4%
C 25%
D 27.3%

3 A company has been wound up and the only assets that remain have realised $45 000. A summary of the company's capital structure shows:
ordinary shares 20000
Preference Shares 40000
Loan Stock 30000

How will the $45 000 be distributed?

Ordinary Shares Preference Shares
$ $
A 10000 20000
B 15000
C 20000 25000
D 40000

4) A partner receives 8 % interest on a partnership loan of $100 000. A company takes over all the assets and liabilities of the partnership. The consideration of $1 m is partly satisfied by the issue of 10 per cent debenture stock in place of the partnership loan, but the total interest payable is to remain the same. The balance will be settled by the issue of 800 000 $1.00 ordinary shares to the partners. What will appear in the company's opening Balance Sheet?

10%Debenture Stock ordinary Shares
$ $
A 80000 800000
B 80000 920000
C 100000 800000
D 100000 900000

5 A company agrees to buy assets from another company for $200 000. The book value of the assets is $170 000. The purchase price comprises cash of $60 000, an issue of $50 000 debenture stock at a discount of 5 %, and an issue of 18 500 ordinary shares. What is the market value of each ordinary share?
A $3.24
B $3.38
C $4.86
D $5.00

6 A business was purchased by a company for $1.5 million. The table shows an extract from the Balance Sheet of the business purchased.
Fixed Assets 400000
Net Current Assets 120000
loan 200000

If these values were agreed by the purchasing company, how much was paid for Goodwill?
A $520000
B $780000
C $980000
D $1 180000

7 A company has issued 8% debentures redeemable 31 December 2003. Under which heading should the company show the debentures in its Balance Sheet at 31 December 2002?
A authorised capital
B creditors : amounts falling due after more than one year
C creditors : amounts falling due within one year
D issued share capital

8 Which changes does a cash flow statement show?
A bank and cash ba'ances
B funds flow
C gearing
D net book value of investments

9 Which material event, occurring shortly after the year end, should be disclosed only as a note to the accounts?
A discovery of a payroll computer fraud
B insolvency of a major debtor
C loss of stock due to flood damage
D permanent reduction in value of property

10 In its accounts, a company makes a transfer from profits to general reserve. How will this be shown in the cash flow statement?
A as an adjustment not involving the movement of cash
B asasourceofcash
C asauseofcash
D not appear at all

11 Which business should have the highest fixed asset turnover?
A a car manufacturer
B a hotel
C an oil company
D a retail department store

12 The issued share capital of PQR Ltd. is:
500 000 6% preference shares of $1.00 each fully paid;
3 000 000 ordinary shares of $0.50 each fully paid.
The company also has a long-term liability consisting of $200 000 of 7 % dobentures 2005 which were issued some years ago. The company's operating profit is $285 000. An appropriate dividend cover for the ordinary shares is 2 times. What will be the dividend per ordinary share?
A $0.04
B $0.0425
C $0.0450
D $0.0475

13 Which of the following will increase gearing?

A conversion of loan stock into shares
B transfer of a general reserve to the Profit and Loss Account
C upward revaluation of freehold premises
D writing off Goodwill

14 Whidh is not a source of long-term finance?
A bank overdraft
B debentures
C ordinary shares
D preference shares

15 A company wishes to raise finance without increasing gearing. Which option will it use?
A a bonus issue of ordinary shares
B an issue of debentures
C an issue of preference shares
D a rights issue of ordinary shares

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