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QUESTION 1 The following information relates to three posible capital expenditure projects. Because of capital rationing only one project can be accepted Initial Cost Expected Life Scrap Value Expected Expected Cash Inflows Ghc200,000.00 5 years Ghc 10,000.00 Ghe 80,000.00 70,000.00 65,000.00 60,000.00 55,000.00 Ghc230,000.00 Ghc180,000.00 5 years Ghc15,000.00 Ghc8,000.00 Ghc 55,000.00 65,000.00 95,000.00 100,000.00 Ghe 100,000.00 70,000.00 50,000.00 50,000.00 50,000.00 ear ear ear ear ear The companys estimated cost of capital is 18% Calculate a) b) c) d) The pay back period for each project. The accounting rate of returns for each project The net present value of each project Which project should be accepted- give reasons (5 marks each)

QUESTION5 Amankwah Enterprise has been in business for so many years and has developed a very good relationship with its banker as a result of trust and excellent satisfactory services the bank offers. Due to this, the proprietor, reconciliation is waste of time since his banker is honest and has proved that all his business Mr Amankwah is of the opinion that preparation o f bank money is safe. As a business advisor, do you agree or disagree with him? (6 marks) b) On 31st December, 2008 Amankwah Enterprise received the monthly bank statement of December 2008 which contained the following transactions Bank Statement December, 2008 DR CR BALANCE 1 Balance b/d 2 Cash 12 Cash 14 Cheque (41002) 14 Sundries 15 Cheque (41003) 19 Cash 26 Cash 29 Cheque (41005) 30 Bank charges 31 Credit transfer 494,240 CR 557,040CR 632,040CR 601,540CR 614,100CR 554,100CR 589,100CR 674,100CR 626,100CHR 621,550CHR 634,350CR 62,800 75,000 12,560 35,000 30,500 60,000 85,000 48,000 4,550 12,800 The cash book for the same period also contained the following Cash Book DR CR December, 2008 1 Balance b/d 5 Sales 12 Sales 14 Ache 19 Sales 26 Sales 31 Anas 494,240 62,800 75,000 12,560 35,000 85,000 14.940 779,540 December. 2008 2 A. Ali 13 Way Ltod 15 Cash (41003) 29 B. Simons (4100) 31 Francis (41005) 31 Bal c/d 71,650 30,500 60,000 120,000 48,000 449,390 779.540 Jan., 2009 Bal b/d 449,390 You are required to prepare i). Adjusted cash book (5 marks) ii). Bank reconciliation statement for the month of December, 2008. (5 marks) iii) Bank reconciliation is needed to identify and account for the differences between the cash book and the bank statement These differences fall into three categories. Identify and explain them. (4 marks)

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Answer to first question in the list:Requirement-(a Payback period refers to the time within which the project is expected to recover all its cash outflows associated with the respective project but without considering time value of money. So, shorter the payback period, higher the acceptibility of the project because all cash outflows are recovered in short period so that uncertainity of cash flows after the payback period need not be worried about by the management. However, that is the drawback of using payback too. Project A Net Cash Cumulative Project B Project C Cumulative CFs 230,000 130,000 -60,000 10,000 40,000 105,000 Year Cash Flows Cumulative Cash Flows CFs Flows 200,000200,000 80,000 70,000 65,000 60,000 65,000 230,000 100,000 70,000 50,000 50,000 65,000 3.20 years 180,000 55,000 65,000 95,000 108,000 CFs 180,000 125,000 60,000 35,000 143,000 0 120,000 50,000 15,000 75,000 140,000 4 Payback Period (PB)-2.77 years 2.63 years [2 years(60,000/95,000)] [2 years+(50,000/65,000)] [3 years+ (10,000/50,000)] Project Cs payback period is the least among all three projects, firm must choose Project-C as per Payback periodRequirement-(b Average accounting rate of return Average return / Average investment. Proiect A Project EB 67,000 Project C Average return Average investment Average accounting rate of return 68,000 80,750 105,000 t(200,000+10,00o)/2122,500(230,000+15,00/2 94,000 (180,000+8,000)/2] 85.90% 64.76% 54.69% (68,000/105,000) (67,000/122,500) (80,750/94,000) As Project-Cs Average accounting rate of return of 85.90% is the highest among all others, firm must choose Project C as per ARR. NOTE: Average return for Project-A-(80,000 + 70,000 + 65,000 + 60,000 + 55,000) / 5 years-68,000; Average return for Project-B (100,00070,000+50,000+50,00065,000)/5 years 67,000; Average return for Project-C (55,000+65,000+95,000+100,000)/4 years 80,750.Requirement- Project A Project B Project C Present Present Present Cash Flow Cash Flow Cash Flows PV Factor @ 18% (p) 1.00000 0.84746 0.71818 0.60863 0.51579 0.43711 Year Value Value Value x (r x (s $200,000 -$200,000.00 $67,796.61 $50,272.9:1 $39,561.01 $30,947.33 $28,412.10 Net Present Value (NPV) $16,989.96 (Sum of PV from year-0 thru 5) $230,000-$230,000.00 $84,745.76 $50,272.9:1 $30,431.54 $25,789.44 $28,412.10 NPV $10,348.24 (Sum of PV from year-0 thru 5) 0 1 2 $80,000 $70,000 $65,000 $60,000 $65,000 $100,000 $70,000 $50,000 $50,000 $65,000 180,000 55,000 65,000 95,000 108,000 180,000.00 46,610.17 46,681.99 57,819.93 55,705.20 4 NPV 26,817.29 (Sum of PV from year-0 thru 4) As Project Cs NPV is positive and is the highest among all the three, firm must choose Project C based on NPV NOTE: PV Factor @ 18%-1/(1+18%); 1/(1+15%!; 1/(1+18%)2; 1/(1+18%)3; 1/(1+18%)4; 1/(1+18%)5 Requirement-(d Based on all three analysis, Project C should be accepted by the management.

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