1.

True or False
I. Capital budgeting is a short range
planning. ( )
II. Financial management is concerned
with allocation of scarce resources among productive uses. ( )
III. In capital budgeting decisions the
word annual income and annual cash flows are more or less synonymous. ( )
IV. Future value is equivalent to PV +
PV (rate of interest). ( )
V. Ratio analysis is the only tool used
to analyze the financial performance of a company.
( )
VI. Sensitivity analysis takes care of
estimation errors by using a number of possible outcomes in evaluating a project. (
)
VII. One may buy the securities when its
value is more than the price. ( )
VIII. As long as NPV > Zero accept the
project. ( )
IX. Internal rate of return is nothing but
the rate of interest, which equates the present value of future earnings with present
investment. ( )
X. The salvage value realizable at the
end of the project will not be added to the last annual cash flows. ( )

2. Multiple-choice questions (Tick () the correct)

I. The major functions of financial management are
A. Investment decisions
B. Financing decisions
C. Dividend decisions
D. All the above

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II. Suppose, you are given an option to receive Birr 1060 after one year which earns
6% interest. How much you have to invest now?
A. 1000 B. 1020 C. 1060 D. 950

III. The following is the data of TOYOTA

Net profit $ 300,000
Income Tax $ 252,000
Interest $ 46,000
Preference dividend $ 32,000
Then the interest coverage is $ 15

A. 6.52 B. 12 C. 13 D. None of the above

IV. From the above figures, fixed coverage is

A. 3.846 B. 7.07 C. 7.67 D. None of the above

V. Current ratio is 2.5, Liquidity ratio is 1.5 and working capital = $ 300,000. What is
the amount of inventory?
A. $ 500,000 B. $ 300,000 C. $ 200,000 D. $ 100,000

VI. Assume that you are the finance manager of a limited company. You have $
10,000 to invest in a project. The life of the project is 20 years. The project will generate
annual cash flows of $ 2,400 per year. What will be the net present value?
A. $ 5,434 B.$ 15,434 C. $ 20,434 D. $ 10,434

VII. The annual cash flows for a project after depreciation and income tax is $ 11,375
on the last year of the project.

The investment in the project $ 56,125

Estimated life 5 years
Salvage value $ 3,000
Depreciation charged on straight-line basis

The annual cash flows for the last year of project is

A. $ 16,000 B. $ 19,000 C. $ 22,000 D. $ 25,000

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VIII. The ultimate goal of financial management is
a. Profit maximization
b. Wealth maximization
c. Increase the real market value of firm
d. All the above

IX. Suppose $ 1,000 deposited in savings bank with commercial Bank of Ethiopia at
5% interest, what will be the future value after five years?
A. $ 1,076 B. $ 1,176 C. $ 1,276 D. None of the above

X. A bond with a face value of $ 100 is currently selling for $ 95 in the market. The
coupon rate of interest is 13.5 percent and the appropriate discount rate is 15 percent.
What will be the value of the bond?
A. $ 110 B. $ 100 C. $ 90 D. $ 80

3. With the help of the following data of a company draw up balance sheet.
- Inventory turnover
6
- Capital turnover (cost of goods sold)
2
- Fixed Assets turnover (cost of goods sold)
4
- Gross profit ratio
20%
- Receivables collection period
2 Months
- Accounts payable payment period
73 days (365 days a year)
- Gross profit
$ 60,000

The closing stock was $ 5,000 in excess of the opening stock.

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 Balance Sheet
Assets $ Liabilities $
Fixed Assets Capital
Closing Inventory Account Payable
Accounts Receivables
Cash (balancing figure)