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FMA721S - FINANCIAL MANAGEMENT FOR AGRICULTURE - 1ST OPP - NOV 2022 |
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n Am I BI A u n IVE RS ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTYOF HEALTH, NATURAL RESOURCESAND APPLIED SCIENCES
DEPARTMENT OF AGRICULTURE AND NATURAL RESOURCES SCIENCES
QUALIFICATION: BACHELOROF SCIENCEIN AGRICULTURE
QUALIFICATION CODE:
07BAGA
COURSECODE: FMA720S
LEVEL: 7
COURSENAME: FINANCIAL MANAGEMENT
FOR AGRICULTURE
DATE: NOVEMBER 2022
DURATION: 3 HOURS
MARKS: 100
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S}
M LUBINDA
MODERATOR:
S KALUNDU
INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number the answers clearly.
PERMISSIBLE MATERIALS
1. Examination question paper
2. Answering book
3. Calculator
THIS QUESTION PAPERCONSISTSOF 5 PAGES(Excluding this front page)
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Financial Management
FMA720S
QUESTION ONE
a. Briefly explain the methods that used to prorate the value of an asset over its economic
useful life.
b. Consider a tractor whose purchasing cost, terminal value, and useful life are N$150,000,
N$50,000, and 10 years. Using the straight-line depreciation method, estimate the book
value of the tractor at the end of the fifth year.
c. Consider a farmer, who wants to switch from tomato to onion production. Suppose the
farmer provides you with the following data extracted from the enterprise budgets of
tomato and onion production.
[MARKS]
(6)
(5)
Enterprise budget item
Yield (in tons per hectare)
Price (in N$ per ton)
Direct cost (N$ per ton)
Overhead costs (N$ per ton)
Tomato enterprise
6
2,500
1,100
450
Onion enterprise
5
3,500
1,000
800
Use the data to answer the questions below.
i.
Determine the net return (profit) per hectare in the tomato enterprise.
(4)
ii.
Calculate the break-even price and break-even quantity in each enterprise.
(4)
iii.
Use the information provided to prepare a partial budget, and then advise
the farmer on the financial viability of switching from tomato production to
(6)
onion production.
Total marks
[25)
First Opportunity Examination
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November 2022
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Financial Management
FMA720S
QUESTION TWO
a. Using appropriate examples, explain the different approaches that can be used to
determine the value of an asset.
[MARKS]
(10)
b. For the accounting period ended December 31, 2020, an enterprise had gross fixed
assets at cost amounting to N$300,000.00; accounts receivable of N$185,000.00;
inventory of N$40,000.00; cash on hand amounting to N$25,000.00; and net fixed of
N$250,000. The agribusiness owed N$130,000.00 and N$110,000.00 in long-term debts
and current liabilities, respectively. Current liabilities consisted of 50% notes payable,
30% accruals, and 20% accounts payable. The agribusiness's equity was consisted of 65%
common stock and 35% retained earnings. Use this information to answer the following
questions:
i. Prepare a balance sheet ledger and enter the information provided above to
generate a balance for the enterprise as of December 31, 2020.
(8)
ii. During the 2021 accounting period the enterprise recorded the following
transactions:
• N$120,000 cash profit.
• N$12,000 cash withdrawal (i.e., dividend payments)
• N$48,000 input purchase in cash
(7)
• N$22,000 credit purchase of inputs. The credit is due in the next accounting
period with a 10% interest.
Based solely on the information provided above. use the double entry system, enter
the transactions described above into the balance sheet ledger you prepared in
part(i). Prepare the enterprise's balance sheet as of December 31, 2021.
TOTAL MARKS
[25]
First Opportunity Examination
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November 2022
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Financial Management
FMA720S
QUESTION THREE
[MARKS]
a. Suppose you have been asked to prepare a presentation on cash flow budgets. Based
on what you have learned in this course, what would be the main points in your
(S}
presentation.
b. Glen Enterprise had sales of N$60,000 in September. Forecast sales for October,
November, and December are N$70,000, N$80,000, and N$100,000, respectively. The
firm had a cash balance of N$69,000 at the beginning of October. The following is the
additional about the timing of the cash receipts and payments for Glen enterprises:
• Glen enterprise receives 40% of its sales in cash and collects the remaining
60% in the following month.
• Glen enterprise's actual or expected purchases are N$50,000, N$45,000, and
N$20,000 for the months of October through December, respectively. All
Glen's purchases are all in cash.
• Glen pays rent of N$3,000 per month.
• Glen's wages and salaries are 40% of the previous month's sales.
• Payment of principal and interest of N$40,000 is due in November.
• A cash purchase of equipment costing N$26,000 is scheduled in October.
• Taxes of N$16,000 are due in December.
i.
Using the information provided above, prepare a cash flow budget for
Glen Enterprise for the months of October, November, and December.
(18)
ii.
Based on the cash flow budget you have prepared in part b (i), estimate
the cash deficit that Glen Enterprise is expected to experience during the
(2)
period October to December.
TOTAL MARKS
[25]
First Opportunity Examination
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November 2022
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Financial Management
FMA720S
QUESTION FOUR
[MARKS]
a. The accompanying table shows financial data and ratios for the Games Product Trust
Fund for the accounting period ended 31 December 2021.
Sales revenue generated
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets
Return on Equity
Average collection period (based on 240 days per year)
N$600,000
90%
35%
8%
16%
20%
62 days
Based on solely on the information provided in the table above, estimate the dollar
values of the following income statement and balance sheet accounts:
i.
Operating expenses
(3)
ii.
Total assets
(2)
iii.
Accounts receivables
(2)
iv.
Total equity
(2)
b. A farmer wishes to purchase a vehicle exactly 5 years from today. The price of the
vehicle today is N$800,000. Your research indicates that the price of the vehicle will
increase by 6% per annum over the next 5 years. Estimate price of the vehicle at the end
(4)
of year 5.
c. A farmer bought a Toyota pick-up using a loan from a bank. The original principal
amount borrowed was N$450,000 and the annual interest was 10%. The loan is to be
repaid over 4-years period. Assuming that the loan is amortised into four equal annual
(4)
payment, prepare a loan amortization schedule showing the interest and principal
breakdown of each of the four annual loan payments.
d. An agribusiness SME is considering two mutually exclusive projects. Each requires an
initial investment of N$40,000. The accompanying table shows the after-tax cash inflows
associated with each project.
Year
1
2
3
4
Project A
N$13,000
13,000
13,000
13,000
Project B
N$7,000
10,000
13,000
16,000
i. Estimate the Payback Period for each project. Rank the projects based on their
Payback Period. Explain your answer.
(4)
ii. Assuming a discount rate of 10%, calculate the NPV for each project. Rank the
project based on the calculated NPVs and select the best project. Explain your
(7)
answer.
TOTAL MARKS
[25]
THE END
First Opportunity Examination
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November 2022
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= Current Ratio Current Assets
Current Liabilities
Inventory turn = Cost of goods sold
Inventory
= Gross Profit Margin Gross Profit
Total Sales
= Average Payment Period
Accounts payable
Average purchases per day
= Times interest earned ratio Net profit before interest and tax
Interest expense
= Operating Profit Margin Operating Profit
Sales
= Return on Equity Net Profit after taxes
Total Equity
PV= FV(1 + i)-n
PV = CF x [l-(l;i)-"]
Financial Ratios
= Asset turn
Sales
Total Assets
= Quick Ratio Current Assets-Inventory
Current Liabilities
Average CoIIect1.0n peno. d = -A-c-c-o-u-nt-s receivable
Average Sales per day
= ----- Debt rati.o
Total liabilities
Total Assets
Asset
turn
= ---S-ales
Total Assets
= ------ Net Profi1tMarum.
t:>
Operating Profit
Sales
= ------ Return on Assets
Net Profit after taxes
Total Assets
Time value formulas
FV= PV(1 + i)n
FV= CF x [(1+1i]t-
PV -
-
+ ____!i_ _ll_
(l+i)l
(l+i)Z
+
(1+i)3
+ ···+ (l+i)"
FV= P1(l + 0n-1 + P2(l + 0n-2 + ...+ Pn
Other Formulas
= Annual Depreciation (cost-salvage value)
useful life
Annual Depreciation = !!.x BV
n
Where R is decline balance rate; n is useful life; and BY is the book value at the
beginning of the year.
Sum-of-the-year digits= (cost - salvage value) x .!!.!:.._
SOYD
= Where RL is the remaining life and SOYD n(n+i)_
2
= Total cost
Break-even price Expected Output
Break-even
quantity
=
Total cost
Expected output
price
First Opportunity Examination
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November 2022