Question Tag: Financing

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  • 20 Marks

ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade

List the roles of banks in international trade in bullet points for SMEs under AfCFTA.

The African Continental Free Trade Area (AfCFTA) is organizing training programs to grow the Small and Medium-sized Enterprises (SMEs) and most importantly to deepen their understanding on international trade and how they can take advantage of the banking system for efficient operation and expansion of their businesses. As Head of Trade Finance of your bank, you have been engaged as a resource person by (AfCFTA) to take Chief Operating Officers of these SMEs on the following topic: “The Role of Banks in International Trade”

REQUIRED:

List these roles (in bullet points only) under the various roles for one mark each.

Note: Long and detailed descriptions are not required.

[Total marks 20]

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  • 20 Marks

ITF – APR 2024 – L3 – Q3 – Cost Calculation for Specialized Steel Quotations

Calculate the effective cost of 100 tons of specialized steel from different country quotations considering payment terms and additional information and determine the most favorable quotation ignoring other charges.

Held and Sons are Stockholders in London whose account is operated on Overdraft basis. Hitherto, they have obtained their Stocks in the UK, but they are now forced to look elsewhere for supplies of specialized steel. They have received the following quotations:

Country Price Per Ton Payment Terms
a. Norway NOK 2,125 FOB, Oslo Open Account: Settlement one month after shipment.
b. Denmark DKK 1,560 CFR, London Draft drawn payable two months after shipment (Collection Charges for buyer).
c. Turkey TRY 2112 CIF, London Irrevocable Documentary Credit payable three months after shipment.

Using additional information set out below, show by calculating the cost of 100 tons of the steel, which of quotations (a), (b) and (c) would be the cheapest for your customer.

Freight charges from any European Port £5 per ton
Insurance (to be affected on 110% of CIF value) 1% payable in £
Collection Charges (total for both banks) ¼ %
Documentary Credit Charges (including Acceptance Commission) ¾ %
Overdraft Interest for one month (considered as 1/12 of a year) 15% pa.
Ignore all other possible charges.

It is to be assumed that your customers would have covered any Exchange Risk on the day of shipment, in accordance with rates quoted below, and that all payments and charges relative to any particular quotation are debited on the same day.

Spot One Month Two Months Three Months
Norway 12.20 – 12.50 10 – 12c disc 15 – 18c disc 20 – 23c disc
Denmark 8.90 – 9.10 8 – 5c pm 10 – 8c pm 14 – 11c pm
Turkey 11.80 – 12.05 12 – 9c pm 14 – 11c pm 16 – 12c pm

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  • 15 Marks

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

MK Plc is considering the best way to finance the replacement for a particular high specification piece of equipment that has become too costly to maintain. The replacement equipment is estimated to have a useful life of 4 years with no residual value after that time.

Two alternative financing schemes are being evaluated:

  • Scheme A: Buy the equipment outright funded by a bank loan
  • Scheme B: Enter into a four-year finance lease

Scheme A: Buy outright, funded by a bank loan
MK Plc could purchase the equipment outright at a cost of N200 million on July 1, 2016. MK Plc can normally borrow at an annual interest rate of 13% per year.

Scheme B: Four-year finance lease
The equipment would be delivered on July 1, 2016, and MK Plc would pay a fixed amount of N58,790,000 each year in advance, starting on July 1, 2016, for four years. At the end of four years, ownership of the equipment will pass to MK Plc without further payment.

Other Information:

  • MK Plc has a cost of equity of 20% and WACC of 16%
  • MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
  • Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

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  • 1 Marks

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

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  • 5 Marks

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

With reference to Option Two:

i) What would be its effective rate of borrowing for the three months if US dollar LIBOR is 4.50% at the start of the notional interest period for the FRA? (2 marks)
ii) What are the advantages of Convertible Bonds? (3 marks)

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  • 1 Marks

BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Identifying a source of financing negotiated between a bank and a company for a specific duration.

A source of financing, negotiated between a bank and a company for a duration of 4–10 years at a fixed rate of interest, is called:
A. Finance lease
B. Term loan
C. Acceptance credit
D. Factoring of debtors
E. Preference share

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  • 9 Marks

FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Defining operating, investing, and financing cash flows with two examples for each.

a. In relation to the Statement of Cash Flows, define the following terms and give two examples in each case:

i. Operating Cash Flows
ii. Investing Cash Flows
iii. Financing Cash Flows
(Total 9 Marks)

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

Public limited liability companies (Plc) obtain funds from a variety of sources. Which of the following is NOT a source of long-term funds for a public limited liability company?
A. Public offer
B. Commercial paper
C. Rights issue
D. Offer for Sale
E. Retained earnings

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  • 1 Marks

BMF – May 2017 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Multiple-choice question on identifying a source that is not typical for long-term capital.

Which of the following is NOT a main source of long-term capital?

A. Venture capital
B. Equity finance
C. Debt factoring
D. Lease finance
E. Debt finance

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  • 8 Marks

AFM – Nov 2017 – L3 – Q5b – Dividend policy in multinationals and transfer pricing

Discusses the factors that affect dividend repatriation policies in multinational companies.

The amount of dividends subsidiaries pay to the parent company depends on the parent company’s dividend policies. Dividend repatriation represents significant flow for parent companies and contributes to dividend payments.

Required:
Discuss FOUR factors that affect dividend repatriation policies of Multinational Companies. (8 marks)

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  • 20 Marks

ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade

List the roles of banks in international trade in bullet points for SMEs under AfCFTA.

The African Continental Free Trade Area (AfCFTA) is organizing training programs to grow the Small and Medium-sized Enterprises (SMEs) and most importantly to deepen their understanding on international trade and how they can take advantage of the banking system for efficient operation and expansion of their businesses. As Head of Trade Finance of your bank, you have been engaged as a resource person by (AfCFTA) to take Chief Operating Officers of these SMEs on the following topic: “The Role of Banks in International Trade”

REQUIRED:

List these roles (in bullet points only) under the various roles for one mark each.

Note: Long and detailed descriptions are not required.

[Total marks 20]

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  • 20 Marks

ITF – APR 2024 – L3 – Q3 – Cost Calculation for Specialized Steel Quotations

Calculate the effective cost of 100 tons of specialized steel from different country quotations considering payment terms and additional information and determine the most favorable quotation ignoring other charges.

Held and Sons are Stockholders in London whose account is operated on Overdraft basis. Hitherto, they have obtained their Stocks in the UK, but they are now forced to look elsewhere for supplies of specialized steel. They have received the following quotations:

Country Price Per Ton Payment Terms
a. Norway NOK 2,125 FOB, Oslo Open Account: Settlement one month after shipment.
b. Denmark DKK 1,560 CFR, London Draft drawn payable two months after shipment (Collection Charges for buyer).
c. Turkey TRY 2112 CIF, London Irrevocable Documentary Credit payable three months after shipment.

Using additional information set out below, show by calculating the cost of 100 tons of the steel, which of quotations (a), (b) and (c) would be the cheapest for your customer.

Freight charges from any European Port £5 per ton
Insurance (to be affected on 110% of CIF value) 1% payable in £
Collection Charges (total for both banks) ¼ %
Documentary Credit Charges (including Acceptance Commission) ¾ %
Overdraft Interest for one month (considered as 1/12 of a year) 15% pa.
Ignore all other possible charges.

It is to be assumed that your customers would have covered any Exchange Risk on the day of shipment, in accordance with rates quoted below, and that all payments and charges relative to any particular quotation are debited on the same day.

Spot One Month Two Months Three Months
Norway 12.20 – 12.50 10 – 12c disc 15 – 18c disc 20 – 23c disc
Denmark 8.90 – 9.10 8 – 5c pm 10 – 8c pm 14 – 11c pm
Turkey 11.80 – 12.05 12 – 9c pm 14 – 11c pm 16 – 12c pm

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  • 15 Marks

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

MK Plc is considering the best way to finance the replacement for a particular high specification piece of equipment that has become too costly to maintain. The replacement equipment is estimated to have a useful life of 4 years with no residual value after that time.

Two alternative financing schemes are being evaluated:

  • Scheme A: Buy the equipment outright funded by a bank loan
  • Scheme B: Enter into a four-year finance lease

Scheme A: Buy outright, funded by a bank loan
MK Plc could purchase the equipment outright at a cost of N200 million on July 1, 2016. MK Plc can normally borrow at an annual interest rate of 13% per year.

Scheme B: Four-year finance lease
The equipment would be delivered on July 1, 2016, and MK Plc would pay a fixed amount of N58,790,000 each year in advance, starting on July 1, 2016, for four years. At the end of four years, ownership of the equipment will pass to MK Plc without further payment.

Other Information:

  • MK Plc has a cost of equity of 20% and WACC of 16%
  • MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
  • Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

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  • 1 Marks

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

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  • 5 Marks

SCS – MAR 2024 – L3 – Q5b – Financial management

Calculate the effective rate of borrowing for three months and explain the advantages of convertible bonds.

With reference to Option Two:

i) What would be its effective rate of borrowing for the three months if US dollar LIBOR is 4.50% at the start of the notional interest period for the FRA? (2 marks)
ii) What are the advantages of Convertible Bonds? (3 marks)

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  • 1 Marks

BMF – May 2018 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Identifying a source of financing negotiated between a bank and a company for a specific duration.

A source of financing, negotiated between a bank and a company for a duration of 4–10 years at a fixed rate of interest, is called:
A. Finance lease
B. Term loan
C. Acceptance credit
D. Factoring of debtors
E. Preference share

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  • 9 Marks

FA – Nov 2014 – L1 – SB – Q6a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Defining operating, investing, and financing cash flows with two examples for each.

a. In relation to the Statement of Cash Flows, define the following terms and give two examples in each case:

i. Operating Cash Flows
ii. Investing Cash Flows
iii. Financing Cash Flows
(Total 9 Marks)

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  • 1 Marks

BMF – Nov 2019 – L1 – SA – Q20 – Basics of Business Finance and Financial Markets

Identifying a short-term funding source that is not used for long-term financing of public limited companies

Public limited liability companies (Plc) obtain funds from a variety of sources. Which of the following is NOT a source of long-term funds for a public limited liability company?
A. Public offer
B. Commercial paper
C. Rights issue
D. Offer for Sale
E. Retained earnings

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  • 1 Marks

BMF – May 2017 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Multiple-choice question on identifying a source that is not typical for long-term capital.

Which of the following is NOT a main source of long-term capital?

A. Venture capital
B. Equity finance
C. Debt factoring
D. Lease finance
E. Debt finance

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  • 8 Marks

AFM – Nov 2017 – L3 – Q5b – Dividend policy in multinationals and transfer pricing

Discusses the factors that affect dividend repatriation policies in multinational companies.

The amount of dividends subsidiaries pay to the parent company depends on the parent company’s dividend policies. Dividend repatriation represents significant flow for parent companies and contributes to dividend payments.

Required:
Discuss FOUR factors that affect dividend repatriation policies of Multinational Companies. (8 marks)

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