RIFT VALLEY UNIVERSITY

MODJO CAMPUS
DEPARTMENT OF ACCOUNTING & FINANCE
GROUP ASSIGNMENT FOR FINANCIAL MANAGEMENT - I
GENERAL DIRECTION
➢ Use your earlier group to work this Assignment
➢ Neatness and clarity of your work may be valued
➢ It exactly submitted on 29/02/2015 before class started and late submission isn’t accepted
➢ Maximum mark this group work holds is 35%
➢ For better preparing yourself for final exam please attempt all questions & in addition to
further investigation any related reading material to this course
➢ Your final exam covers chapter 2,4 and 5 with proportion of 35%,45% and 20% respectively.
➢ Provide greater focus to your assignment, handout & in class lecture notes
S/No Name ID Classification section Sign
1
2
3
4
5
6
7
8
9
10
1. Assume that 4CU company have the following financial information then answer the
following question
➢ From annual sales of Br.800,000 45% of sales made on credit so that company haven’t
bad debt account
➢ From each of sales twenty-five cents represent cost of goods sold
➢ Similarly, from each of sales Br.0.5625 and 0.325 flows to operating income and net
income respectively.
➢ From each Birr invested on total asset fifty-five cents is financed by long term debt
➢ 4CU company able to cover its interest expense nine times by using its operating income
➢ Each Birr invested on total asset able to generate sales of sixteen cents
➢ Company owned Br.4.85 and Br.0.85 to satisfy each Birr of company’s short-term
obligation if company uses entire of its current asset and cash & Cash equivalents
respectively
➢ Company waits for eighteen days from date of acquiring and selling of inventory where
as wait for twenty days to collect its credit sales from date sales is made.
➢ At the end of accounting period company’s ledger account shows from purchase made on
account Br.7,000 was remain unpaid and expected to be paid at the begging of next
accounting period
➢ Debenture bond is 55% of long-term debt
➢ Marketable security of the period is 15% of cash balance

Set By: HABTAMU B. Page 1 of 4

 RIFT VALLEY UNIVERSITY
MODJO CAMPUS
DEPARTMENT OF ACCOUNTING & FINANCE
GROUP ASSIGNMENT FOR FINANCIAL MANAGEMENT - I
➢ Number of outstanding shares holders@0.4625 is 32,000
➢ Current market price per share of 4CU company is Br.1.25
➢ If company’s equity section incorporates common stock &retained earning and hence No
preferred stock.
a. Complete below framed income statement and balance sheet (15%)

4CU company
Income statement
December 31,2022
Sales
LESS: Cost of goods sold
Gross profit
LESS: Selling and administrative expense
Earnings before interest and tax
LESS: Interest expense
Earning before tax
LESS: Tax (40%)
Income before preferred stock dividend
LESS: Dividend to preferred stock
Net income
Income before Common stock dividend
LESS: Dividend to Common stock
Addition to Retained Earning

Set By: HABTAMU B. Page 2 of 4

 RIFT VALLEY UNIVERSITY
MODJO CAMPUS
DEPARTMENT OF ACCOUNTING & FINANCE
GROUP ASSIGNMENT FOR FINANCIAL MANAGEMENT - I
4CU company
Balance Sheet
As of December 31,2022
Cash
Marketable security
Account receivable, Net
Inventory
Total Current Asset
Vehicles & Machinery Br.5,000
Land & Building
Total long-term Asset
TOTAL ASSET
Account payable
Accruals
Total current liability
Note payable, long term
Debenture bond
Total long-term liability
Total liability
Common stock@0.4625par value
Retained earning
Total stock holders’ equity
TOTAL LIABILITY & STOCK HOLDERS EQUITY
b. To what amount should company’s earning per share grows to represent firms market
price per share of Br.500 (2% mark)
c. Given financial ratios of 2022 fiscal period taken as it was identical with next (2023
accounting period) then
i. If company intends to realize gross profit of Br.500,000, then what
projected what sales enables the firm to realize this attempt? (1% mark)
ii. If company intends to realize net income of Br.2,000,000, then what
projected what sales enables the firm to realize this attempt? (1% mark)
iii. If company wants to acquire asset that worth by Br.250,000, then what
this amount is financed be debt and equity? (2% mark)
2. The Great ways Company is considering replacing an old plant with a newer model having
lower maintenance cost. The old plant has a current book value of $ 9, 000 and a (straight-
line) depreciation charge $ 3, 000 per year for the remaining life of 3 years including current
year. It will have no salvage value. However, at present the machine can be sold in the
market for $ 6, 000. The existing machine requires an annual maintenance cost of $ 3, 000.
The new machine will cost $ 12, 000 and require an annual maintenance cost of $ 12,000 and
require an annual maintenance cost of $ 600. It’s expected useful life is 3 years with no
Set By: HABTAMU B. Page 3 of 4
 RIFT VALLEY UNIVERSITY
MODJO CAMPUS
DEPARTMENT OF ACCOUNTING & FINANCE
GROUP ASSIGNMENT FOR FINANCIAL MANAGEMENT - I
salvage value. Assume straight-line depreciation and tax 50% for new plot what is your
replacement decision? (2% mark)
3. Farewell company has an investment opportunity costing $ 30, 000 with the following
expected net cash flows (after taxes and before depreciation)
Year 1 2 3 4 5 6 7 8 9 10
Net cash flow (Br.) 4,000 4,000 4,000 4,000 4,000 7,000 9,000 12,000 9,000 2,000
Using 10% as the cost of capital determine the following (1% mark each = 5%)
a. Payback period, discounted
b. Net present value at 10%
c. Accounting Rate of Return
d. Profitability Index at 10%
e. Internal rate of return with the help of 10% and 15% discounting factor
4. Once you define what meant by cost of capital, then describe cost of debt, cost of preferred
stock and cost of common stock with their respective determination (3% mark)
5. If required rate of creditor is 10% and tax rate is40%. Then compute cost of capital
(1% mark) given that
𝑲𝒅 =𝑹(𝟏 − 𝑻), where𝐾𝑑 = 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑑𝑒𝑏𝑡 𝑇 = 𝑇𝑎𝑥 𝑟𝑎𝑡𝑒 𝑎𝑛𝑑 𝑅 = 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑐𝑟𝑒𝑑𝑖𝑡𝑜𝑟
6. If preferred stock for a net price of Br. 42 is issued and preferred stock pays Br.5 dividend is
made then cost of preferred stock will be were (1% mark)
𝑫𝑷
𝑲𝑷 = 𝑴𝑴−𝑭 where𝐾𝑃 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑝𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑠𝑡𝑜𝑐𝑘 , 𝐷𝑃 = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑒𝑑 𝑡𝑜 𝑝𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑠𝑡𝑜𝑐𝑘
MM= net market price of preferred stock and F – Floatation cost
7. If market price of common stock Br.60per share and dividend just paid is Br.3 where growth
rate is 10%, then calculate cost of common stock (1% mark)
𝑫
𝑲𝑺 =𝑷𝟏 + g where 𝐾𝑆 = 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘, 𝐷1 𝑖𝑠 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑒𝑑 𝑝𝑜 – market price
𝒐
per share and g – growth rate
8. If additional shares are issued under floatation cost of 12% and dividend per share is Br.3 and
estimated growth rate is 10% and market price per share is Br.6 then compute cost of issuing
new common stock share were (1% mark)
𝑫𝟏
𝑲𝑪𝑵 = 𝑷 −𝑭 + 𝒈 where KCN – cost of issuing new common stock, D1 -dividend to common
𝑶
stock, PO – Market price per share, F- floatation cost and g – growth rate

THE END
WISHES YOU THE BEST

Set By: HABTAMU B. Page 4 of 4