LECTURER: DR.

LORDINA AMOAH GAs: DEREK ESSIEN & ANGELO AKUOKU

DEPARTMENT OF FINANCE
FINC 301: INRODUCTION TO BUSINESS FINANCE
TUTORIAL SET 5
1. ABC is in the process of preparing budgets for the period October to December 2019. The
following information has been provided to assist in the budgeting process:
• Budgeted monthly sales revenue is as follows:
GH¢
October 40,000
November 70,000
December 50,000
January 2020 45,000
• Sales are 20% cash and 80% credit. Credit sales are collected over a three-month period,
15% in the month of sale, 70% in the month following sale and 15% in the second month
following sale. Bad debts of 5% are anticipated on all credit sales.
• Total sales revenue in August amounts to GH¢30,000 and September’s total sales revenue
amounts to GH¢36,000.
• Monthly purchases are as follows
GH¢
October 37,500
November 33,000
December 27,700
• 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid
for in the month following purchase. As at 30 September 2019, amount owed for purchases
are GH¢11,700.
• A grant of GH¢20,000 is expected to be received in mid-October.
• A second-hand van which cost GH¢8,000 three years ago is expected to be sold in
December 2019 for GH¢3,000.
• Equipment costing GH¢4,500 will be purchased and paid for in November 2019. The
equipment will be depreciated on a straight-line basis over three years.
• Operating expenses are paid as incurred. These have been estimated as follows:
GH¢
October 12,800
November 18,900
December 14,600
The above figures include depreciation on existing assets of GH¢2,000 per month.
• The cash balance on 1 October is expected to amount to GH¢8,000

Required:
Prepare a cash budget on a monthly basis and in total for the period October 2019 to December
2019.

2. EKM Limited expects to sell 8,200 mobile phones this year. The cost of placing an order
from its supplier is GH¢200. Each phone costs GH¢600, and carrying costs are 20% of the
LECTURER: DR. LORDINA AMOAH GAs: DEREK ESSIEN & ANGELO AKUOKU

purchase price. Currently, they order 250 mobile phones at a time. They are however not
sure if this is efficient. You have been tasked to help.
a. Provide them with an optimal order quantity (round to the nearest whole)
b. What savings will accrue to EKM Ltd as a result of the switch?

3. JLA Limited demands 70,000 units of raw materials a year at a steady rate. The cost of an
order and holding per year is ȼ20 and ȼ3.0 respectively. Estimate the order size that helps
JLA Limited to minimize stock costs.

4. What are marketable securities? Identify any five examples of marketable securities?

5. The demand for a company’s product is 50,000 units per month. It is estimated that it will
cost GHC3 to keep one unit of the product for one year. A cost of GHC40 is incurred each
time an order is placed.
Required

a. Calculate the economic order quantity.

6. Given the following information, calculate the target cash balance using the BAT
model: Annual interest rate 6%; Fixed order cost ₵25; Total cash needed ₵8,500
How do you interpret your answer?

7. You have been employed as the finance Manager of a manufacturing company.

Normal Usage -110 units per day

Minimum Usage -50 units per day

Maximum Usage -140 units per day

Lead Time -25-30 days

Economic Order Quantity- 5,000

units.

Required

Calculate the following

a. Re-order Level
LECTURER: DR. LORDINA AMOAH GAs: DEREK ESSIEN & ANGELO AKUOKU

b. Minimum Stock Level

8. Aldi Corporation has determined that its target cash balance if it uses the BAT model
is ₵2,700. The total cash needed for the year is ₵28,000, and the order cost is ₵10.
What interest rate must Aldi be using?

9. Differentiate between the Money Market and the Capital Market?

10. If current interest rate is 28%, a Treasury Bill with 91 days to maturity, and a face value of
GH¢ 50,000 should have a market value of? Calculate the discount on the 91-days bill?
What are the proceeds at the end of the year?

11. Assuming you bought a 182-day Treasury Bill with a face value GH¢20,000.00 and held
it for 45 days. If you want to sell it and interest rate is currently at 25%, at what price will
you sell it?

12. During the latest year Ruth corp. had sales of $300,000 and a net income of $200,000 and
its year-end assets were 200000. The firm’s total debt to assets ratio was 40%. Based on
the DuPont equation, what was the firm’s ROE?

13. If EOQ=36 units, order costs are GHS 5 per order, and carrying costs are GHS 20 per
unit, what is the usage in units?
State if these are true or false
14. If current assets are $20,000, where inventory is $5,000, and total liabilities are $50,000
the current ratio is 0.4

15. Tom invests $1000 to start a new firm. He knows that the debt to total asset ratio will be
0.40. tom expects a net profit margin of 9% and a total asset turnover rate of 2. Tom
should expect a return on equity of 30%.

16. The demand for a commodity is 40,000 units a year, at a steady rate. It costs $20 to place
an order, and $0.40 to hold a unit for a year. Find:
a) the order size to minimize stock costs
b) number of orders placed each year
c) the length of the stock cycle
d) calculate the total inventory cost