S6 BAFS Practice Paper | Share Issues, Ratio Analysis, Marginal Costing, Capital Investment Appraisal, Cash Budget, Cost Of Capital (with Answers)

S6 BAFS Practice Paper | Share Issues, Ratio Analysis, Marginal Costing, Capital Investment Appraisal, Cash Budget, Cost of Capital (with answers)

2026-11-15

Business, Accounting and Financial Studies · S6

S6 BAFS practice paper: 6 questions, 24 parts, 100 marks, 60 minutes, covering share issues, ratio analysis, marginal costing and capital appraisal, with answers.

Paper details　S6 BAFS Practice Paper | Share Issues, Ratio Analysis, Marginal Costing, Capital Investment Appraisal, Cash Budget, Cost of Capital (with answers)

Share Issues, Dividends and Retained Profits

All share capital of Wing Tat Ltd is ordinary shares with a par value of 1 dollar each. Each part is independent.

#	Question	Answer and marking notes
1	The company issues 200,000 ordinary shares at 5 dollars each and receives the proceeds in full. Find the increases in share capital and in share premium.	Answer: share capital increases by 200,000 dollars (200,000 shares x 1 dollar); share premium increases by 800,000 dollars (200,000 shares x (5 – 1) dollars).
2	A final dividend of 0.15 dollar per share is declared on 200,000 ordinary shares in issue. Find the total final dividend.	Answer: 30,000 dollars. (200,000 shares x 0.15 dollar = 30,000 dollars)
3	Opening retained profits are 450,000 dollars, profit for the year is 182,000 dollars and an interim dividend of 45,000 dollars was paid during the year. Find the closing retained profits.	Answer: 587,000 dollars. (450,000 + 182,000 – 45,000 = 587,000)
4	The company then issues bonus shares out of retained profits, one share for every five shares held. Find the number of bonus shares, the increase in share capital, and the share capital and retained profits after the issue.	Answer: 40,000 bonus shares (200,000 / 5); share capital increases by 40,000 dollars (40,000 shares x 1 dollar); after the issue share capital is 240,000 dollars and retained profits are 547,000 dollars (587,000 – 40,000).

Financial Ratio Analysis

A company reports: current assets 480,000 dollars (including inventory 120,000 dollars), current liabilities 240,000 dollars, sales 1,200,000 dollars, average receivables 200,000 dollars, gross profit 360,000 dollars, profit before tax 210,000 dollars and capital employed 1,400,000 dollars.

#	Question	Answer and marking notes
5	Calculate the current ratio and the quick ratio.	Answer: current ratio 2.0 : 1 (480,000 / 240,000); quick ratio 1.5 : 1 ((480,000 – 120,000) / 240,000).
6	Calculate the receivables turnover in times and the average collection period in days, using 365 days and rounding to a whole day.	Answer: turnover 6 times (1,200,000 / 200,000); average collection period about 61 days (365 / 6).
7	Calculate the gross profit margin.	Answer: 30%. (360,000 / 1,200,000 x 100%)
8	Calculate the return on capital employed using profit before tax and capital employed.	Answer: 15%. (210,000 / 1,400,000 x 100%)

Costing and Contribution Margin

A product sells for 50 dollars per unit, its variable cost is 30 dollars per unit and annual fixed costs are 180,000 dollars.

#	Question	Answer and marking notes
9	Find the unit contribution margin and the break-even sales volume in units.	Answer: contribution 20 dollars (50 – 30); break-even volume 9,000 units (180,000 / 20).
10	Find the break-even sales revenue, and the margin of safety percentage if actual sales are 12,000 units.	Answer: revenue 450,000 dollars (9,000 units x 50); margin of safety (12,000 – 9,000) / 12,000 = 25%.
11	Find the sales volume required to earn a target profit of 60,000 dollars.	Answer: 12,000 units. ((180,000 + 60,000) / 20)
12	If the unit variable cost rises to 32 dollars while the selling price and fixed costs stay unchanged, find the new break-even volume and state its effect.	Answer: new contribution 18 dollars (50 – 32), new break-even volume 10,000 units (180,000 / 18), which is 1,000 units more than before.

Capital Investment Appraisal

A company plans to buy equipment costing 500,000 dollars with expected annual cash inflows of 140,000 dollars for 5 years, no residual value, straight-line depreciation and a discount rate of 10%.

#	Question	Answer and marking notes
13	Calculate the payback period in years and months.	Answer: 500,000 / 140,000 = 3.5714 years, that is 3 years 7 months.
14	Calculate the net present value at a 10% discount rate, using an annuity factor of 3.7908.	Answer: present value 530710 dollars (140,000 x 3.7908), net present value 30710 dollars (530710 – 500,000), which is positive.
15	Assuming annual depreciation of 100,000 dollars, find the annual profit and the accounting rate of return on average investment.	Answer: annual profit 40,000 dollars (140,000 – 100,000); average investment 250,000 dollars; rate of return 16% (40,000 / 250,000).
16	Taking the net present value and payback results together, state whether the company should accept the project and give one reason.	Answer: accept. The net present value is positive (about 30710 dollars), so the project earns more than the 10% cost of capital; however the payback period is about 3 years 7 months, so liquidity and obsolescence risk still matter.

Cash Budget

Opening receivables are 120,000 dollars. Sales for January to March are 300,000, 360,000 and 420,000 dollars. 60% of sales is collected in the month of sale and 40% in the following month. Cost of sales is 60% of sales and purchases are paid half in the month of purchase and half in the next month. Operating expenses are 60,000 dollars per month. Closing cash at the end of February is 20,000 dollars.

#	Question	Answer and marking notes
17	Find the cash collected in January.	Answer: 300,000 dollars. (opening receivables 120,000 + 300,000 x 60% = 300,000)
18	Find the cash collected in February.	Answer: 336,000 dollars. (300,000 x 40% + 360,000 x 60% = 336,000)
19	Find the cash paid for purchases in February.	Answer: 198,000 dollars. (50% of January purchases 180,000 + 50% of February purchases 216,000 = 198,000)
20	Find the closing cash at the end of March and state whether financing is needed in March.	Answer: 122,000 dollars. (20,000 + 396,000 collected in March – 234,000 paid for purchases – 60,000 = 122,000); cash is positive so no financing is needed in March.

Cost of Capital and Corporate Governance

Capital structure: bonds 1,000,000 dollars at a 6% coupon, a bank loan of 500,000 dollars at 8% per year and equity of 2,000,000 dollars with a 12% cost of equity. The profits tax rate is 16.5%. Profit for the year is 840,000 dollars, there are 200,000 ordinary shares and dividends of 300,000 dollars were paid.

#	Question	Answer and marking notes
21	Calculate the after-tax cost of the bonds and of the bank loan.	Answer: bonds 6% x (1 – 16.5%) = 5.01%; loan 8% x (1 – 16.5%) = 6.68%.
22	Calculate the weighted average cost of capital using book value weights.	Answer: total capital 3,500,000 dollars; (1,000,000 x 5.01% + 500,000 x 6.68% + 2,000,000 x 12%) / 3,500,000 = 9.24%.
23	Calculate the earnings per share.	Answer: 4.20 dollars. (840,000 / 200,000 shares)
24	Calculate the dividend payout ratio and state the effect of retaining more profit on future financing cost.	Answer: 35.7% (300,000 / 840,000). Retained profits are internal finance and are usually cheaper than new shares or borrowing, so they can lower the future weighted average cost of capital, but shareholders dividend expectations must be balanced.

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