Online Examination 2021

Subject: Business Finance Date: 11-Dec-2021

Teacher: Duration:

Course Code: Fin-301 Marks:

Student I.D: _______________ Program:

Instructions:

Read all questions carefully.

All questions are compulsory.

Q1. Mechanics of Valuation: (10)

a. If you invest your money (100,000) in a saving account with 10% annual interest rate what
will be the Effective annual rate if interests are paid on monthly basis. (2)
b. How much money must you deposit in a savings account today to have Rs. 20,000 in 20 years
if the interest rate is 8% compounded annually? (2)
c. How much must you save at the end of each of the next 10 years to have Rs. 100,000 at the
end of the 10th year if the interest rate is 10%? (2)
d. You borrow Rs. 1,000 and promises to repay Rs. 2,000. If you want to pay a 5% return on
your loan, within how many years you must pay back? (2)
e. If the discount rate is 14%, what is PV10 of Rs.300 received at the end of each of the next 10
years except for the fourth year? (2)
Q.2 The Arbor Drugs, Inc. income statement from its 2013annual report is presented below: (4)
Required: Prepare vertical common-size Income Statement Use net sales as a base.
Consolidated Statement of Income
Arbor Drugs, Inc. and Subsidiaries
Fiscal years ended July 31 2013
(Dollars in thousands)
Net sales 534,966
Costs and expenses
Cost of sales (390,896)
Selling, general, and administrative (117,337)
Provision for third-party settlement
and
related expenses (16,000)
Income from operations 10,733
Interest expenses (1,738)
Interest income 961
Income before income taxes 9,956
Provision for income tax 3,047
Net income 6,909

Q.3 Three years ago, your firm purchased a Machine for Rs.52, 000. It is being depreciated
straight line to a salvage value of Rs. 2,000 in two more years. If your firm sells the Machine
today for Rs. 22,500, it will receive only Rs. 21,150 after taxes.
a. What is the annual depreciation on the machine? (1)
b. What is the current book value of the machine? (2)
 c. What is your firm's marginal tax rate? (2)

Q.4 Jim Korp designs game cartridges for home computers. His total fixed cost for designing a
game package is $4,000. The cartridges the game is programmed into cost $4 each, and he
sells them for $20 each. He currently sells 300 cartridges for each game he designs.
a.What are his break-even point, NOI, and DOL now? (3)
b.If the price of a cartridge rises to $6 and he simultaneously raises the sales price to $22,
what will the new break-even point, NOI, and DOL be? (3)

Q.6 a.What are the Major Responsibilities of a Financial Manager (2)

b.What are the risk and rewards attached with the Bonds and Shares? (3)

Q.7 With the help of given ratios, calculates missing components of Income Statement and
Balance Sheet for the Betra Co. (10)
Show All Necessary Calculations
Cash 100,000 Accounts payable 150,000
Marketable securities 50,000 Notes payable 50,000
Accounts receivable ? Long-term debt ?
Inventory ? Common stock ?
Net fixed assets ? Retained earnings 200,000
Total 1,000,000 Total ?
Sales 1,200,000 Ratios
Cost of goods sold ? Current ratio 2.0
Gross profit ? Quick ratio 1.5
Operating expenses ? Times interest earned 6
Net operating income ? Debt – equity ratio 1
Interest ? Gross profit margin 0.3
Net profit before tax ? Book return on equity 0.02
Tax 40,000
Net income ?