Raya University

College of Business and Economics

Department of Accounting and Finance

Financial Management -I

Test two for 2nd year extension students (out of 15%)

Time allowed: 1 hour

Name________________________________________ID.No._____________Section_______

Part One: Multiple Choice (8 points)

1. Which of the following is an indication of the direction of change and reflects whether a firm's

financial performance has improved, deteriorated or remained constant over time?

A. Ratio analysis B. Horizontal Analysis C. Common size analysis D. Vertical analysis

2. All of the following are items included in the determination of quick ratio except?

A. Marketable securities B. Accounts receivable C. prepaid expenses D. Cash

3. Lengthy collection period suggests that the firm might have the following potential problems

except?

A. It is not effective in collecting its A/R B. It may give credit to marginal customers

C. Its profitability is adversely affected D. it has relatively lower bad debts

4. All of the following are the possible problems associated with a very low inventory turnover

except?

A. opportunely cost B. interruption of production process

C. inventory carrying costs D. over investment in inventory

5. In making comparisons between fixed asset turnover ratios of different organizations, the

factor which is least likely considered is:

A. Initial cost of the fixed assets B. The time elapsed since their acquisition

C. The depreciation methods used D. Operational efficiency

6. FM Company has Net Sales of 200,000, profit margin of 3% and Return on assets (ROA) of

6%. What is the company’s total assets turnover ratio?

A. 2 B. 1.8 C. 1 D. 0.5

7. Which of the following conditions would not make the assumptions of AFN equation

inappropriate?

A. Lumpy assets B. Economies of scale C. Full capacity D. Excess capacity

8. The financial ratios which show the combined effects of liquidity, asset management, and debt

on operating results are:

A. Leverage ratios B. Turnover ratios C. Profitability ratios D. Market value ratios

Part Two: Work-out (7 points)

1. Bannister Corporation generated $4,000,000 in sales during 2010, and its year-end total assets

were $3,500,000. Also, at year-end 2010, current liabilities were $700,000, consisting of

$200,000 of notes payable, $200,000 of accounts payable, 200,000 of bonds payable and

$100,000 of accruals. Looking ahead to 2011, the company estimates that its assets must increase

at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its

profit margin will be 7%, and its payout ratio will be 70%.

Required: How large a sales increase can the company achieve without having to raise funds

externally? 3 points
2. The following information relates to XYZ Company:

Debt ratio: 40%; Quick ratio: 0.70; Total assets turnover: 1.2; Total assets = 700, 000

Day’s sales outstanding: 31 days; Inventory turnover: 2.5; Gross profit margin on sales: 25%

Required: Determine the company’s Cash, Accounts receivable, Inventories, Current liabilities,

Long-term debt and stockholders’ equity? 4 points