FINA6000 WEEK 1 WORKSHOP QUESTIONS

(FINANCIAL STATEMENT ANALYSIS and INTRODUCTION TO CORPORATE

FINANCE)

MULTIPLE CHOICE QUESTIONS

Question 1

Accumulated depreciation is:

a) an expense
b) a liability
c) an asset
d) a contra asset account

Question 2

Interest expense is:

a) an operating expense
b) a finance expense
c) an investment expense
d) an operating income

Question 3

Depreciation expense is:

a) a non-cash expense
b) a cash expense
c) not an expense
d) an asset

Question 4

Tax expense is:

a) an operating expense
b) a finance expense
c) an investment expense
d) an operating income

Question 5

In the following question, calculate the following:

(a) Gross Profit

(b) Earnings Before Interest and Tax
(c) Dividends Paid
(d) Retained Earnings
(e) Equity at end of 2015
(f) Return on Equity based on End of year Figure

FINA6000 WEEK 1 WORKSHOP QUESTIONS 1

 Amount ($)
Description
Year 2015
Sales 250,000
Cost of goods sold 150,000
Depreciation 32,500
Interest expense 7 500
Selling and administrative expenses 27,500
Equity (at the beginning of 2015) 980,750
Tax rate 30%
Dividends payout 50%

Question 6

Company D is a food retailer. The following table provides some financial information for Company D
and the food retail industry.
Company D
Net income after tax $ 50,000
Total assets 500,000
Equity 200,000
Current liabilities 100,000
Non-current liabilities 200,000
Sales revenue 300,000

Calculate:
(a) Asset turnover ratio
(b) Long term debt to equity ratio
(c) Equity multiplier
(d) Return on Assets

Question 7

How much is equity if current assets are $8,000, net non-current assets are $15,000, current liabilities
are $5,000 and non-current liabilities are $7,000?
a) $11,000
b) $15,000
c) $20,000
d) $5,000

Question 8

How much is net working capital if current assets are $14,000, net non-current assets are $20,000,
current liabilities are $4,000 and non-current liabilities are $9,000?
a) $5,000
b) $15,000
c) $20,000
d) $10,000

FINA6000 WEEK 1 WORKSHOP QUESTIONS 2

Question 9

What is the current ratio if current assets are $8,000, net non-current assets are $15,000, current
liabilities are $5,000 and non-current liabilities are $7,000?
a) 2:1
b) 1:2
c) 1.6:1
d) 1:3

Question 10

How much is dividends per share if the net income of a company is $48,000, total number of shares
outstanding is 40,000 and dividend payout ratio is 35%?
a) $1.00
b) $0.42
c) $2.00
d) None of the above

Question 11

Which of the following is the earnings per share (EPS) if the net income of a company is $60,000, total
number of shares outstanding is 30,000 and dividend payout ratio is 28%?
a) $1.00
b) $0.50
c) $2.36
d) $2.00

Question 12

Wambui invested $12,000 in 6% preference shares of Company A. How much is the preference
dividend Wambui receives if the net income of Company A is $70,000, and the company pays the above
preference dividend?
a) $4,000
b) $720
c) $5,000
d) None of the above

Question 13

What is the return on equity for Company Z if its net income is $50,000, total number of shares
outstanding is 50,000, total equity is $500,000 and dividend payout ratio is 40%?
a) 6%
b) 4%
c) 10%
d) 24%

Question 14

The Balance sheet is a statement of:

a) revenues and expenses
b) cash inflows and cash outflows
c) assets, liabilities and equity
d) changes in equity

FINA6000 WEEK 1 WORKSHOP QUESTIONS 3

Question 15

Income statement is a statement of:

a) revenues and expenses
b) cash inflows and cash outflows
c) assets, liabilities and equity
d) changes in equity

Question 16

How much is total retained earnings for Company M if its net income is $65,000, total number of shares
outstanding is 50,000 and dividend payout ratio is 40%?
a) $25,000
b) $50,000
c) $20,000
d) $39,000

Question 17

From the following table calculate net income after tax for 2012?

Amount ($)
Description
Year 2012
Sales 500,000
Cost of goods sold 300,000
Depreciation 65,000
Interest expense 15,000
Selling and administrative expenses 55,000
Equity (at the beginning of 2016) 197,250
Tax rate 30%
Dividends payout 50%

a) $45 500
b) $19,500
c) $32,000
d) $80,000

Question 18

While borrowing is considered leverage, it involves:

a) credit risk
b) market risk
c) bankruptcy risk
d) operational risk

FINA6000 WEEK 1 WORKSHOP QUESTIONS 4

Question 19

What is the after tax gain/loss from selling an asset for $40,000 if the cost of asset is $50,000,
accumulated depreciation is $20,000 and the applicable tax rate for the company is 30%?
a) $10,000
b) $7,000
c) $40,000
d) $37,000

Question 20

What is the cash flow from selling an asset for $40,000 if the cost of asset is $50,000, accumulated
depreciation is $20,000 and the applicable tax rate for the company is 30%?
a) $10,000
b) $7,000
c) $40,000
d) $37,000

Question 21

What is the sustainable growth rate for Company P if net income is $75,000, total number of shares
outstanding is 90,000, total equity is $380,000 and dividend payout ratio is 40%?

a) 6.38%
b) 11.84%
c) 10.00%
d) 24.00%

Question 23

Company D is a food retailer. The following table provides some financial information for Company D
and the food retail industry.
Company D Industry
Net income after tax $ 50,000 $ 300,000
Total assets 500,000 5,000,000
Equity 200,000 1,000,000
Current liabilities 100,000 1,000,000
Non-current liabilities 200,000 3,000,000
Sales revenue 300,000 1,500,000

Evaluate the return on equity of Company D vis-a-viz the industry:

a) Company D has equally performed as with the industry
b) Company D has overperformed the industry
c) Company D has underperformed the industry
d) Cannot be compared

FINA6000 WEEK 1 WORKSHOP QUESTIONS 5

SHORT ANSWER QUESTIONS

Question 1

What are the three key decisions facing corporate financial managers? Are these decisions
interrelated or independent? Are there any other key decisions that a corporate manager should
consider?

Question 2

Ritter Corporation’s accountants prepared the following financial statements for year-end 2017. Its
Income Statement for 2017 is as follows:

Revenue $400

Expenses $250

Depreciation $50

Net Income $100

Dividends $50

Ritter Corporation Balance Sheet is as below

2017 2016

Assets

Cash $25 $5

Other current assets $125 $95

Net fixed assets $200 $100

Total Assets $350 $200

Liabilities and Equity

Current liabilities $75 $50

Long-term debt $75 0

Shareholders’ equity $200 $150

Total liabilities and equity $350 $200

FINA6000 WEEK 1 WORKSHOP QUESTIONS 6

(a) Determine the change in cash during the year 2017.

(b) Determine the change in net working capital in 2017.

(c) Calculate the cash flow of the firm during the year 2017.

FINA6000 WEEK 1 WORKSHOP QUESTIONS 7