Course : Diploma in Business Management

Module Code : Unit_07

Module : Accounting and Financial management

2 hours

1. Time value of money indicates that

a. A unit of money obtained today is worth more than a unit of money obtained in future
b. A unit of money obtained today is worth less than a unit of money obtained in future
c. There is no difference in the value of money obtained today and tomorrow d. None of
the above

2. Time value of money supports the comparison of cash flows recorded at different time period
by
a. Discounting all cash flows to a common point of time
b. Compounding all cash flows to a common point of time
c. Using either a or b
d. None of the above.

3. If you deposit LKR 10,000 in a bank account that pays 4% interest, compound annually, how
much will you have at the end of 10 years?
FV=P(1+r)^n
F=10000(1+0.04)^10
F=14802.4

4. How much a businessman has to deposit in an account today that pays 10% of interest,
compound quarterly, so the businessman can have a balance of LKR 200,000 in the account
at the end of 5 years?
PV=FV/(1+r)^n
PV=200000/(1+0.1)^5
PV= 124184.2

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 5. John is willing to lend you LKR 100,000 for six months. At the end of a year, John requires
you to repay the LKR 100,000 and 50%.

a. What is the length of the compounding period? 6 months

b. What is the rate of interest for the compounding period?
c. What is the annual percentage rate associated with John’s lending activities?
d. What is the effective annual rate of interest associated with John’s lending activities?

6. What are the three types of operating costs? Provide examples.

fixed cost- rent
Variable cost- raw material cost
Semi variable cost- unit wise electricity charges, telephone charges

7. What are the factors to consider when designing an effective capital structure?
Return
Risk
Flexibility
Capacity
Control

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