Bece Model Questions Vol1 2022 Business Studies Question 5

A small business keeps a monthly bank statement for March. The following information is recorded: - Opening balance on 1 March: ₦150,000 - 3 March: Rent paid – ₦40,000 - 5 March: Cash sales deposited – ₦100,000 - 10 March: Salaries paid – ₦60,000 - 12 March: Bank transfer received – ₦150,000 - 18 March: Purchase of inventory – ₦80,000 - 20 March: Loan received – ₦200,000 - 25 March: Electricity bill paid – ₦5,000 - Monthly service charge: ₦2,000 (deducted at month‑end) - Interest rate on the average daily balance: 3% per annum, credited at month‑end (interest is calculated on the average daily balance for the month). The bank’s loan eligibility criteria are: 1. Average daily balance must be at least ₦200,000. 2. Debt‑service‑coverage‑ratio (DSCR) must be at least 1.2, where DSCR = (Net cash inflow after interest and service charge) ÷ (Monthly debt repayment). The required monthly debt repayment for the loan is ₦30,000. Using the data above, answer the following: a) Determine the closing balance on 31 March after interest has been credited and the service charge deducted. b) Calculate the average daily balance for the month. c) i) Compute the amount of interest earned for March. ii) State the effective annual interest rate if the monthly interest is compounded. d) i) Calculate the DSCR for the business. ii) Based on the bank’s criteria, state whether the business qualifies for the loan and give a brief justification.