Principles of Finance

at
Categories
Tags

 

Q1. Identify the key financial decisions facing the financial manager of any business firm and Explain the meaning of each decision? (1 mark)

Q2. What can happen if a firm is poorly managed? (1 mark)

Q3. If the expected inflation rate is 10 percent and the real rate of interest is 4 percent:

Compute the nominal rate of interest. (Hint: use equation 2.1) (0.5 mark)
Briefly differentiate between the nominal and the real rates of interest. (0.5 mark)
Q4. Nimitz Rental Company provided the following information to its auditors. For the year ended March 31, 2011, the company had revenues of $878,412, general and administrative expenses of $352,666, depreciation expenses of $131,455, leasing expenses of $108,195, and interest expenses equal to $78,122.

If the company’s tax rate was 34 percent, what is its net income after taxes? (1 mark)

Q5. Modern Appliances Corporation has reported its financial results for the year ended December 31, 2011.

Modern Appliances Corporation

Income Statement for the Fiscal

31-Dec-11

Sales

5,398,412,000

Cost of goods sold

3,432,925,255

Gross profit margin

1,965,486,745

Selling, general, and admin. expenses

1,036,311,231

Depreciation

299,928,155

Operating income

629,247,359

Interest expense

35,826,000

EBT

593,421,359

Income taxes

163,104,554

Net earnings

430,316,805

Consolidated Balance Sheet

Modern Appliances Corporation

Balance Sheet as of December 31, 2011

Assets

Liabilities and Stockholders’ Equity

Cash and cash equivalents

$ 514,412,159

Short-term borrowing

$ 117,109,865

Accounts receivable

1,046,612,233

Trade accounts payable

466,937,985

Inventories

981,870,990

Other current liabilities

994,289,383

Other current assets

313,621,610

Total current assets

$2,856,516,992

Total current liabilities

$1,578,337,233

Net fixed assets

754,660,275

Long-term debt

1,200,691,565

Total liabilities

$2,779,028,798

Goodwill

118,407,710

Common stock

397,407,352

Other assets

665,058,761

Retained earnings

1,218,207,588

Total equity

1,615,614,940

Total assets

$4,394,643,738

Total liabilities and stockholders’ equity

$4,394,643,738

Using the information from the financial statements, complete a comprehensive ratio analysis for Modern Appliances Corporation.

a. Calculate these liquidity ratios: current and quick ratios. (0.2 mark)

b. Calculate these efficiency ratios: inventory turnover, total asset turnover. (0.2 mark)

d. Calculate these leverage ratios: total debt ratio, debt-to-equity ratio, Equity multiplier. (0.2 mark)

e. Calculate these profitability ratios: gross profit margin, net profit margin, ROA, ROE. (0.2 mark)

f. Use the DuPont identity, and after calculating the component ratios, compute the ROE for this firm. (0.2 mark)

 

Sample Solution

Principles of Finance

The key aspects of financial decision-making relate to financing, investment, dividend and working capital management. Decision making helps to utilize the available resources for achieving the objectives of the organization, unless minimum financial performance levels are achieved, it is impossible for a business enterprise to survive over time. Therefore financial management basically provides a conceptual and analytical framework for financial decision making. There are four main financial decisions: capital budgeting or long term investment decision (application of funds); capital structure or financing decision (procurement of funds); dividend decision (distribution of funds); and working capital management decision.

and Mouffe, they oppose that traditional idea that society can be differentiated to numerous kinds of practices through deductive reasoning and analysis. At the same time, they replace the traditional Marxist thinking with a new approach of discourse and support their claims that all manner is discursive and there is no immunity of one system to another (Howarth, 2010). Additionally, by deconstructing the traditional Marxism, Laclau and Mouffe rethink the social and political analysis on the basis of idea that all entities and actions possesses a meaningful status that bestow from different system. In short, that particular meaning of object relies on a specific system of difference or the discourse that emerge that being’s identity (Howarth, 2010, p. 100). For instance, David Howart provides an explanation within his publication that, the definition of the tree can be considered and interpreted in several dimensions. It can be perceived as a disposable provision for economic sustainability or development, while it can be defined as a portrayal of nature charm in the perspective of various environmentalist discourses. As a matter of fact, “each of these discursive structures is a social and political construction, which establishes a system of relations between different object and practices, while providing subject positions with which social agents can identify” (Howarth, 2010, pp. 101-102). Specifically, Laclau and Mouffe challenge the accentuation given to the economy and the method of productivity and to the significance of class. Marxism is condemned for attempting to get a handle on history through some fundamental improvement of method of productivity or class division and struggle. Therefore, this reductionism keeps Marxism from getting a handle on both the plural idea of society as an uncertain space with no settled pith, and drastically unexpected nature of social powers whose character is never settled, however open and deficient (Joseph, 2006).

This question has been answered.

Get Answer