Bece Model Questions Vol1 2020 Business Studies Question 5

Practice practical question 5 from the 2020 Bece Model Questions Vol1 Business Studies examination. This question covers Banking, Financial Management, Loan Evaluation .

Bece Model Questions Vol1 2020 Business Studies Practical

Topics: Banking Financial Management Loan Evaluation

Question 5 BECE_MODEL_QUESTIONS_VOL1 • 2020 • BUSINESS_STUDIES • practical

Mrs. Okafor, the owner of a small printing business, is applying for a short‑term loan to purchase a new printing machine. The bank has asked her to provide the following information: Bank statement (last 6 months) | Month | Cash inflow (₦) | Cash outflow (₦) | |-------|----------------|-----------------| | 1 | 500,000 | 350,000 | | 2 | 480,000 | 360,000 | | 3 | 520,000 | 340,000 | | 4 | 510,000 | 355,000 | | 5 | 495,000 | 345,000 | | 6 | 505,000 | 350,000 | Projected cash flow for the next 12 months (net cash flow after operating expenses, before any loan repayment) | Month | Net cash flow (₦) | |-------|-------------------| | 1 | 150,000 | | 2 | 160,000 | | 3 | 155,000 | | 4 | 165,000 | | 5 | 158,000 | | 6 | 162,000 | | 7 | 170,000 | | 8 | 168,000 | | 9 | 175,000 | |10 | 172,000 | |11 | 180,000 | |12 | 178,000 | The bank’s loan terms are: - Maximum loan amount: ₦2,000,000 - Simple interest rate: 12% per annum - Repayment period: 12 months, equal monthly installments - Processing fee: 2% of the loan amount (paid once at loan approval) - Monthly account maintenance fee: ₦5,000 Answer the following questions:

Question Parts

( a )

Calculate the average monthly cash inflow, the average monthly cash outflow and the average monthly net cash flow for the six‑month bank statement.

( b )

From the projected cash flow, determine the total amount of cash that can be allocated to loan repayment over the 12‑month period if Mrs. Okafor will devote 30% of each month’s net cash flow to the loan.

( c )

Using the amount found in (b), calculate the maximum loan principal Mrs. Okafor can afford. (Recall that for simple interest the total amount repayable = Principal × (1 + r t), where r = 12% per annum and t = 1 year.)

( d )

For the loan amount obtained in (c), compute: (i) the processing fee, (ii) the total interest payable over the year, (iii) the total of the monthly maintenance fees for the 12 months, (iv) the overall cost of the loan (interest + processing fee + maintenance fees). Finally, advise whether taking the loan is financially viable if the business expects an annual revenue of ₦3,600,000 from the new machine and aims for a minimum net profit margin of 15%.

( ) Processing fee.

( ) Total interest payable.

( ) Total maintenance fees for 12 months.

( ) Overall cost of the loan.

( ) Viability assessment.

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About This Question

This is Bece Model Questions Vol1 2020 Business Studies Question 5. It is one of the practical questions from the 2020 Bece Model Questions Vol1 Business Studies examination.

The question covers Banking, Financial Management, Loan Evaluation .

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