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GCE JUN 2007 : (A2 7) Finance

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Centre Number 71 Candidate Number ADVANCED General Certificate of Education 2007 GCE Applied Business assessing Finance A6B11 Assessment Unit A2 7 [A6B11] THURSDAY 21 JUNE, AFTERNOON TIME 1 hour 30 minutes. INSTRUCTIONS TO CANDIDATES 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR Write your Centre Number and Candidate Number in the spaces provided at the top of this page. Write your answers in the spaces provided in this question paper. Answer all three questions. INFORMATION FOR CANDIDATES The total mark for this paper is 80. Quality of written communication will be assessed in questions 2(d) and 3(c). Figures in brackets printed down the right-hand side of pages indicate the marks awarded to each question or part question. ADVICE TO CANDIDATES You are advised to take account of the marks for each part question in allocating the available examination time. If you do not have sufficient space to complete your answers, you may use the additional pages at the back of the booklet. For Examiner s use only Question Number 1 2 3 Total Marks A6B1S7 2455 Marks 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR BLANK PAGE A6B1S7 2455 2 [Turn over Study the information below and answer the questions that follow. 1 Supercars Limited produces and sells remote control model cars from a production plant located near Glenarm, County Antrim. The plant is mostly automated enabling the direct labour content of production to be kept to a minimum, and is sub-divided into three operations, Production, Assembly and Painting. Each model car requires one hour s production time, half an hour s assembly time and half an hour s painting time. The direct labour costs are 6.00 per hour for Production, 5.50 per hour for Assembly and 5.00 per hour for Painting. Technical problems with the management information system have meant that neither the re-allocation of the Store s Department overheads (Table 1) or the overhead absorption rates (Table 2), can be calculated. The following financial information (Table 1) related to the production of model cars has been summarised and relevant total expenditures calculated, using the company s management information system. Total number of Stores Issue Notes issued to the Production Department was 6000 whilst the number issued to the Assembly and Painting Departments was 2000 each. Management have agreed that this will be the basis upon which to allocate the Stores Department costs to other departments. A total of 154 000 machine hours were recorded in the company, and were sub-divided between the various departments as shown in Panel A below: Panel A: Machine Hours Department Number of machine hours 64 000 Painting 44 000 Total 154 000 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 46 000 Assembly 4 - 09-01-07RR Production A6B1S7 2455 3 [Turn over (a) Complete Table 1 to show the production overhead analysis and apportionment of overheads for Supercars Limited. Examiner Only [8] Marks Remark Table 1 Supercars Limited Production Overhead Analysis and Apportionment Table Overhead Indirect material Indirect wages Catering costs Rent Depreciation Energy costs Rates Health/Safety Expenses Bases of Total Production Assembly Painting Stores Apportionment Cost ( ) Dept. ( ) Dept. ( ) Dept. ( ) Dept. ( ) 10 000 4000 3000 2000 1000 Direct Direct Area Plant cost Power use Area 11 000 16 000 13 000 9000 15 000 16 000 5000 6000 5000 3000 7000 5000 3000 5000 5000 3000 5000 5000 2000 4000 2000 2000 2000 4000 1000 1000 1000 1000 1000 2000 No. of Staff 10 000 5000 1000 2000 2000 100 000 Stores Direct 40 000 30 000 20 000 10 000 Stores issues 0 Total overheads 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR You may use this space for your calculations for Table 1. A6B1S7 2455 4 [Turn over (b) Complete Table 2 to show the appropriate rates of overhead recovery for (i) the Production Department; (ii) the Assembly Department; and (iii) the Painting Department. All calculations must be shown in the box provided. [9] Examiner Only Marks Remark Table 2: Overhead Absorption Rates Production Department Assembly Department Painting Department Machine Hours Total Overheads ( ) Overhead Rate per Machine Hour ( ) You may use this space for your calculations for Table 2. (c) Identify and explain the circumstances under which it would be more suitable to adopt a machine hour rate: 4 - 09-01-07RR _________________________________________________________ _________________________________________________________ 3 - 24.10.06BP _________________________________________________________ _________________________________________________________ _________________________________________________________ 2 - 11.08.06BP _________________________________________________________ _________________________________________________________ 1 - 14.06.06ML _________________________________________________________ _______________________________________________________ [3] A6B1S7 2455 5 [Turn over Study the information below and answer the questions that follow. Examiner Only Marks 2 Remark Jenny works as a financial controller for a local aircraft company called Planes Ltd. The company wishes to invest in a new riveting machine to produce wings for various models of aircraft under production at the company s factory. Peter, the production director, meets with Jenny to review the relevant data. He has obtained the following information related to this investment project: Year 1 No. of aircraft wings produced/sold Sales Revenues (per wing) Variable costs (per wing) Year 2 Year 3 10 10 7 350 000 450 000 230 000 50 000 150 000 75 000 The cost of the new machine is 6,000,000 paid at the start of the project. The discount factor to be used is 10%. The relevant discount factors are summarised as follows. 0.9091 2 0.8264 3 0.7513 It may be assumed that all cashflows occur evenly throughout each year and that normal conventions apply regarding the use of discounting techniques. The company has advised Peter that there may not be sufficient finance to purchase the new riveting machine, but that the company may be able to lease the machine, depending upon the projected viability of the project. Jenny has asked you, as her deputy, to assist Peter in reviewing the project. Jenny had already prepared some calculations, but had to leave the company on other business. You are required to finish her calculations as far as the information permits: 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 10%DF 1 4 - 09-01-07RR Year A6B1S7 2455 6 [Turn over (Note: Candidates may present their calculations/workings rounded, to the nearest throughout subsections (a) and (b) as appropriate.) Examiner Only Marks Remark (a) Calculate the payback period for this project: Annual Net Cash ow ( ) Cumulative Net Cash ow ( ) Initial Investment (6 000 000) (6 000 000) Year 1 3 000 000) (3 000 000) Year 2 Year 3 1 085 000 Payback period is: ________________ [4] 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR You may use this space for your calculations: A6B1S7 2455 7 [Turn over (b) Calculate the net present value (NPV) of this project: Examiner Only Marks Year 1 Annual Net Cash ow ( ) Discount Factor (10%) 3 000 000 0.9091 2 Present Value ( ) 2 727 300 0.8264 3 Remark 0.7513 Total Present Value Less: Initial Investment Net Present Value [7] 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR You may use this space for your calculations: A6B1S7 2455 8 [Turn over (c) With reference to your calculations and other related issues, indicate if the investment should proceed, stating clearly your final recommendation to Peter. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _______________________________________________________ [4] (d) Evaluate the advantages and disadvantages of leasing for a business such as Planes Ltd. _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ 4 - 09-01-07RR _________________________________________________________ _________________________________________________________ 3 - 24.10.06BP _________________________________________________________ _________________________________________________________ _________________________________________________________ 2 - 11.08.06BP _________________________________________________________ _________________________________________________________ 1 - 14.06.06ML _________________________________________________________ _________________________________________________________ A6B1S7 2455 9 [Turn over Examiner Only _________________________________________________________ Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ 4 - 09-01-07RR _________________________________________________________ _________________________________________________________ 3 - 24.10.06BP _________________________________________________________ _________________________________________________________ 2 - 11.08.06BP _________________________________________________________ _________________________________________________________ 1 - 14.06.06ML _________________________________________________________ _________________________________________________________ ______________________________________________________ [12] A6B1S7 2455 10 [Turn over Study the information below and answer the questions that follow. 3 The following are two public limited companies that operate within the leisure industry in Northern Ireland. JurysDoyle Hotel Group plc Hilton Group plc The JurysDoyle Group plc operates a 3 Star comfort hotel in Belfast. The hotel has 190 standard rooms and is located in the centre of Belfast, adjacent to the Grand Opera House and near venues such as Belfast City Hall and the Castlecourt Centre. The hotel opened for business in 1998. The Hilton Group plc operates a 5 Star luxury hotel in Belfast City Centre. The hotel has 195 bedrooms and is close to all amenities in Belfast. The Hilton Group plc also operates a hotel in Templepatrick, County Antrim, located near the M2 motorway and convenient to Belfast International Airport. A recent comment by stock-market analysts stated: ... the company is struggling to match 2001 sales and pro ts performance. Management should concentrate on making assets work more ef ciently . A recent comment by stock-market analysts stated: ... the dividend is uncovered (by earnings) in the last three years. Pro ts graph is a little up and down in this leisure industry sector . 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR The company is quoted on the London The company is quoted on the London and Dublin Stock Exchanges. and Dublin Stock Exchanges. A6B1S7 2455 11 [Turn over Table 1 (2003 Results) Examiner Only Marks Company Financial Year ended: Remark JurysDoyle Hotel Hilton Group plc Group plc 31 December 31 December 2003 2003 m m Sales 177.7 8930.5 Profit Before Tax (Operating Profit) 32.1 171.2 Dividends 10.4 141.1 728.8 2646.0 Current Assets 20.9 966.9 Current Liabilities 99.8 1150.2 218.8 1678.6 14.1 158.2 Reserves 449.8 2285.5 Capital Employed 463.9 2443.7 Fixed Assets Long Term Debt Share Capital Note: Financial data related to JurysDoyle Hotel Group plc has been translated into sterling equivalent 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR Source: adapted from (i) Stock Market Annual 2005 (p. 71); and (ii) Stock Market Annual 2005 (p. 60); Published by Private Research, Dalkey, Dublin, Ireland. A6B1S7 2455 12 [Turn over (a) You are required to calculate the following accounting ratios, based on the formulae provided: Examiner Only Marks Remark 1. Return on Capital Employed: Profit before Tax Return on Capital Employed = 100% Capital Employed JurysDoyle Hotel Group plc Hilton Group plc 100% 100% Return on Capital Employed % % You may use this space for your calculations: [2] 2. Net Profit Margin: Profit before Tax Net Profit Margin = 100% Sales JurysDoyle Hotel Group plc Hilton Group plc 100% Net Profit Margin % % You may use this space for your calculations: 3 - 24.10.06BP 4 - 09-01-07RR 100% 1 - 14.06.06ML 2 - 11.08.06BP [2] A6B1S7 2455 13 [Turn over 3. Fixed Asset Turnover: Examiner Only Marks Remark Sales Fixed Asset Turnover = Fixed Assets JurysDoyle Hotel Group plc Hilton Group plc Fixed Asset Turnover times times You may use this space for your calculations: [2] 4. Current Ratio: Current Assets Current Ratio = Current Liabilities JurysDoyle Hotel Group plc Current Ratio Hilton Group plc times times 4 - 09-01-07RR You may use this space for your calculations: 1 - 14.06.06ML 8.6.05BP 22 -13.10.05AC 11.08.06BP 3 - 24.10.06BP [2] A6B1S7 A6B1S7 2455 14 [Turn over 5. Gearing: Examiner Only Marks Remark Long Term Debt Gearing = 100% Capital Employed JurysDoyle Hotel Group plc Hilton Group plc 100% Gearing % 100% % You may use this space for your calculations: 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR [2] A6B1S7 2455 15 [Turn over (b) Using the information and the ratios calculated in part (a), discuss the financial position of JurysDoyle Hotel Group plc and Hilton Group plc with respect to the following ratios: Examiner Only Marks Remark 1. the Return on Capital Employed Ratio _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ ___________________________________________________ [3] 2. the Net Profit Margin _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ ___________________________________________________ [3] 4 - 09-01-07RR 3. the Fixed Asset Turnover Ratio _____________________________________________________ 3 - 24.10.06BP _____________________________________________________ _____________________________________________________ _____________________________________________________ 2 - 11.08.06BP _____________________________________________________ 1 - 14.06.06ML ___________________________________________________ [3] A6B1S7 2455 16 [Turn over 4. the Current Ratio Examiner Only Marks Remark _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ ___________________________________________________ [3] 5. the Gearing Ratio _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR ___________________________________________________ [3] A6B1S7 2455 17 [Turn over (c) Table 1 indicates that the two companies use share capital to finance business activities. Evaluate the use of share capital as a source of finance. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ 4 - 09-01-07RR _________________________________________________________ _________________________________________________________ 3 - 24.10.06BP _________________________________________________________ _________________________________________________________ _________________________________________________________ 2 - 11.08.06BP _________________________________________________________ _________________________________________________________ 1 - 14.06.06ML _______________________________________________________ [8] A6B1S7 2455 18 [Turn over Extra page (if needed) Examiner Only Marks Remark ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ A6B1S7 2455 19 [Turn over Extra page (if needed) Examiner Only Marks Remark ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ A6B1S7 2455 20 [Turn over Extra page (if needed) Examiner Only Marks Remark ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ A6B1S7 2455 21 [Turn over Extra page (if needed) Examiner Only Marks Remark ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ A6B1S7 2455 22 [Turn over 1 - 14.06.06ML 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP THIS IS THE END OF THE QUESTION PAPER A6B1S7 2455 23 [Turn over S 6/06 7-081(1) [Turn over 1 - 14.06.06ML 2 - 11.08.06BP 3 - 24.10.06BP 4 - 09-01-07RR

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Additional Info : Gce Applied Business June 2007 Assessment Unit A2 7 - Finance
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