1.

The Simmaproducts corporations have the following capital structure, which it considers
optimal:
Bonds, 7% (at par) Br 300,000
Preferred stock, Br.5 240,000
Common stock 360,000
Retained earnings 300,000
1,200,000
Additional Information:
 Dividends on common stock are currently Br 3 per share and are expected to grow at
constant rate of 6%.
 Market price of common stock is Br 40 and the preferred stock is selling at Br50.
 Flotation cost on new issues of common stock is 10%.
 The interest on bonds is paid annually and the company’s tax rate is 40%.
Calculate:
(a)The cost of bonds (b) the cost of preferred stock (c) the cost of retained earnings
(d) The cost of new common stock (e) the weighted average cost of capital.
2. Complete the following financial statements of Omega Company on the basis of the ratios given
below.

Omega Company
Profit and loss account
For the year ended June 30 , 2012
Sales 2,000,000
Cost of Goods Sold 600,000
Gross Profit 1,400,000
Operating Expenses 1,190,000
Earnings Before Interest and Tax
Debenture Interest (10% of debenture payable) 10,000
Income Tax (50%)
Net Profit

Omega Company
Balance sheet
For the year ended June 30 2012

Assets Liabilities
Cash Account payable 60,000
Inventory Debentures Payable
Account receivables 35,000 Total liabilities
Total Current Assets Reserve and Surplus
Fixed Assets Share Capital
Total Assets Total Liability and Equity
Additional Information
A. Net Profit to Sale…………….. 5% D. Inventory Turnover …………. 15 times

B. Current Ratio………………… 1.5 E. Share Capital to Reserve…….. 4:1

C. Return on Net Worth ……….. 20 % F. Tax Rate……………..………..

3. You are a financial analyst for Adote Company. The director of capital budgeting has asked
you to analyze two proposed capital investments, projects A and B. Each project has a cost of
Br 90,000 and Br 100,000 respectively. The cost of capital for each project is 9 percent. The
projects’ expected net cash flows are as follows:

Expected net cash flows

Year project A Project B
1 Br 25,000 Br 20,000
2 16,000 30,500
3 30,000 30,500
4 30,000 30,000
5 20,000 25,000
A. Calculate each project’s payback period (PBP)

B. Which project or projects should be accepted if they are mutually exclusive and if payback
period is used as evaluation criteria?

C. Calculate each project’s Net present value (NPV)

D. Which project should be accepted if they are mutually exclusive and if net present value is
used as evaluation criteria?

E. Calculate each project’s IRR and Give decision as which project should be acceptable, if IRR
is used as evaluation criteria?
4.Balance sheet and income statement for Abay Company is given as follows.

Abay company
Balance sheet
For the year ended December 31, 2016
Assets Liabilities and stock holders’ equity
Cash …………………….…… Br 77,500 Accounts payable ………… Br129, 000
Receivables …………………….336, 000 Notes payable ………………..84,000
Inventories……………………… 241,500 other current liabilities………117,000
Total current assets …………. Br 655, 000 Total current liabilities …… Br330, 000
Net fixed assets………………… 292,500 Long-term debt ……….……. 256,500
Common equity ….…………. 361,000
Total assets ................................. 947,500 Total liabilities and equity ......... 947,500
 Abay company
Income statement
On December 31, 2016
Sales ……………………………………………………………………..….……. Br 1,607,500
Less: Cost of goods sold …………………………………………………………… 1,392,500
Selling, general, and administrative expenses ……………………………….. 145,000
Earnings before interest and taxes (EBIT) …………………………………………… 70,000
Less: Interest expense ………… ……………………………………………………... 24,500
Earnings before taxes (EBT) …………………………………………………..……….. Br 45,500
Less: Federal and state income taxes (40%) ………………………………...………….. 18,200
Net income …………………………………………………….………………... Br27, 300
Required: Calculate and interpret the following ratios (do not forget to interpret)
A. Return on asset B. Acid test ratio

B. Net margin ratio Total asset turnover ratio

C. Interest coverage ratio

N.B

1. Maximum students in each group should be 3

2. Submission date will be on January 20/2022

3. Mode of submission should be by hard copy

4. Include only answers