Assessment Instrument Cover Sheet

Semester: Spring Academic Year: 2020-21

Course Code: BFIN 200 Course Title: Principles of Financial Management

Section: 1 Assessment Instrument: Mid-term

Due Date: Wednesday, 17 March 2021 at 14:30 Duration: 1 hr 20 min + 15 min (submission time)

Course Instructor: Alina Maydybura College/Department: Dubai Business School

This instrument assesses the following Course Learning Outcomes (CLO):

Tick Course Learning Outcomes (CLO)* Chapter Questions Marks

□ CLO 1:
Chapter 1 Question 1 / 5
Examine corporate financial performance, using
ratios for a UAE/GCC company
Chapter 3 Question 2 / 5

Chapter 4 Question 3 / 5

□ CLO 2:
Chapter 5 Question 4 / 5
Explain the time value of money principles.

TOTAL / 20

*Linkages to Program Outcomes are provided in the Syllabus.

Student Name:

Student ID:

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PLEASE READ CAREFULLY: Spring 2020-21 – Online Exam – Rules and Guidelines

 Log in to Zoom at least 15-20 min prior to the start of the exam, using the following link:
https://ud-ae.zoom.us/j/94942812274?pwd=YnVXK3czRmZ6dUlienhHOWFuSXZXQT09

 This exam is 1 hr 20 min long (or 80 min in total). After a short introduction, the exam starts at 14:35 and ends at 15:55. You then have an
additional 15 min submission grace period after the exam ends, or until 16:10 to submit your exam answers into a folder on Moodle “Mid-term –
Student Scripts”. You will NOT be given extra time to complete your exam. Do NOT use the 15 min submission grace period to continue writing the
exam answers. Your exam paper is forfeited, if the system closes, and your exam paper is not submitted as a result.

 If you experience any issues during the exam, contact the IT team at helpdesk@ud.ac.ae immediately.

 No scrap paper or additional notes will be accepted and/or graded after 16:10. All your work must be submitted before 16:10 into Moodle.
However, you can resubmit your work as many times as you wish before 16:10.

 Your exam paper will be sent you by email 5 min prior to the start of the exam (at 14:30). There are different versions of the exam, where each
student has a distinct exam, with his/her ID and name written on it. Make sure you choose the correct exam paper, with YOUR NAME and ID on it.

 You may ask questions in the first 20 min of the exam ONLY. You are NOT allowed to seek help from any person/device/source during the exam. If it
is suspected that this exam is NOT an entirely own work of yours, your will receive zero marks for the exam.

 Your exam is video recorded from start to end. By agreeing to take the exam, you agree to the following: (1) video recording, and (2) rules of the
exam outlined on this page. Violating any of the rules stated on this page automatically makes your exam invalid.

 If you experience any issues (e.g., health or technical) during the exam, clearly mention this during the exam itself AND send an email briefly stating
the same to the instructor. Any issues reported after the exam ends at 16:10 are not taken into consideration.

 Your exam automatically becomes invalid, and you will have to apply for a make-up exam (subject to approval; otherwise, zero marks for the
exam), if you demonstrate any of the following at any stage of the exam:
o Your microphone is not ON for the entire duration of the exam.
o Your camera is not ON for the entire duration of the exam.
o You use your mobile/tablet as a camera.
o You are logged in from more than one device.
o You lose internet connection and/or your PC restarts/shuts down. The duration of the log out time is irrelevant.
o You take breaks during the exam, where you are physically away from any of the devices used for the exam: camera, microphone, PC.
o You leave the exam venue before 15:55.
o Your electronic devices have not been switched OFF and put AWAY.
o You have either the earphones or the headphones ON.
o You are a male wearing either a hat or a cap.

 There are 4 questions in the exam – a mix of theory and calculations. You need to answer all questions.

 CALCULATION questions:
o You need to show all your workings, formulas, notes, calculations, with the final answer. You will receive zero marks for that question (and all
its subparts/subsections) otherwise.
o Do NOT copy answers from Excel. You will receive zero marks, if you do so.
o Marks will be lost if you do NOT round all numbers to two decimal points or show appropriate units of measurement with the numerical
answer (for example: $, %, times, years, days, kgs, meters, etc.).
o The formula sheet is at the back of the exam paper. You may not need to use all the formulas given.

 THEORY questions:
o There is no defined desired word limit. You can write as many words/sentences as you wish as long as you answer the question(s). Do not
write more than the question is asking you to. In most cases, you will not need > 3 sentences to answer a theory question.
o Your answers to theory questions are automatically submitted to Turnitin (PlagScan) at 16:10 with the aim of detecting plagiarism. If the
percentage of matching in Turnitin > 25%, you will receive zero marks for the entire question (and all the parts thereof).

 TYPE your EXAM ANSWERS and submit them as ONE Word file (with no photos/images) into a Moodle folder “Mid-term – Student Scripts”. Moodle
will not accept your work, if it is NOT: (1) Word doc; (2) one file. The only way to submit the exam is on Moodle, with no email submissions
accepted.

 You can practice submitting a sample file into a folder on Moodle “Mock Exam Submission” to see how the online submission system works and
rectify any issues you may be experiencing beforehand.

 Do NOT save your exam as a Macro-Enabled Word Document – Moodle will not accept it. Accepted file format: Word 2007 document [.docx] or
Word document [.doc]. To change the file type in Windows, go to “File” → “Save As” → Choose location on PC → Create “File Name” and “Save as
type” → “Word Document” OR “Word 97-2003 Document”.
SUGGESTION: Since you can resubmit your exam as many times as you wish before 16:10, try submitting your draft exam file way before 16:10 and
see if Moodle accepts it. This will give you enough time to fix the file format and submit your exam on time.

 Moodle closes at 16:10, and no exam submissions are accepted after that. You will need to apply for a make-up exam, once you have missed the
submission deadline. It is the student’s responsibility to submit the “correct” file into the system and do so on time. Not knowing how to use
Moodle for the purpose of submitting the exam is the responsibility of the student. You will receive zero marks for the exam otherwise.

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 Please DRESS ACCORDINGLY for the exam and have appropriate surroundings, suitable for a university-level exam environment. No students will be
allowed to write the exam in bed, on the couch, in the bathroom, etc. Wishing you all a pleasant and confident exam experience!

Question 1 5 points Chapter 1

a. If you were to set up your own business, justify which form of business organization you would choose for this purpose.
Support your answer with an explanation. (1 point)
If I were to set up my own business i would like to start as a sole proprietor. Most new organizations begin as sole proprietorship.
This is the least complex type of possession for a sole proprietor and requires minimal in excess of an assessment ID number. In any
case, when there are worries over tax assessment or responsibility issues, or when the business has various proprietors, other
association types ought to be thought of. Organizations organized as sole ownerships can incorporate individual specialists,
creatives, developing new companies, and set up organizations with actual customer facing facades or workspaces. There is no
restriction to the quantity of individuals a sole owner can recruit, however the proprietor is actually obligated for the wages,
expenses, and wellbeing and security of workers.
b. Provide an example of a real company that has gone bankrupt as a result of the agency problem (other than ‘Enron’ that was
discussed in class). (1 point)
Ponzi schemes address a considerable lot of the better-known instances of the office issue. Office hypothesis asserts that an
absence of oversight and motivating force arrangement incredibly add to these issues. Numerous financial backers fall into Ponzi
plans feeling that taking asset the board outside a customary financial foundation diminishes expenses and sets aside cash.
Some Ponzi conspires just exploit purchaser doubts and fears about the financial business despite the fact that set up monetary
organizations lessen hazard by giving oversight and authorizing lawful practices. These speculations establish a climate where the
shopper can't as expected guarantee that the specialist is acting in the chief's wellbeing.
c. Analyze whether Notes Payable and Notes Receivable fall under the operating activities of the firm. (1 point)
. Yes , Notes Payable and Notes Receivable fall under the operating activities of the firm.

d. Explain the meaning the concept of the matching principle and discuss its importance in evaluating the financial position of a firm.
(1 point)
The concept of matching principle is the bookkeeping rule that necessitates that the costs caused during a period be recorded in a
similar period in which the connected incomes are acquired. This rule perceives that organizations should cause costs to procure
incomes. The rule is at the center of the accumulation premise of bookkeeping and changing sections. The essential motivation
behind why organizations cling to the coordinating with rule is to guarantee consistency in fiscal summaries, like the pay
articulation, monetary record and so forth .Perceiving the costs at some unacceptable time may twist the budget summaries
incredibly and give a mistaken monetary situation of the business. The coordinating with standard assists organizations with trying
not to misquote benefits for a period. For instance, a cost that is perceived sooner than it is fitting outcomes in a lower overall gain.
e. Discuss which of the two financial metrics is more informative: Net Working Capital or Net Operating Working Capital.
Net Working capital, otherwise called net working capital (NWC), is the distinction between an organization's present resources,
like money, debt claims (clients' neglected bills) and inventories of crude materials and completed products, and its present
liabilities, for example, creditor liabilities.
Net operating working capital is a proportion of an organization's liquidity and alludes to the contrast between working current
resources and working current liabilities.
Operating Working capital is the proportion of all drawn out resources versus all drawn out liabilities. Net working capital is not the
same as working capital. Net working capital zeros in additional on the now, as opposed to the long haul. Therefore both monetary
measurements are instructive.

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Question 2 5 points Chapter 3
 The accounting department of Nandos Co. has issued a forecast of the company’s income statement, as per below:

Sales $ 70,000
Operating costs $ (34,000)
EBITDA $ 36,000
Depreciation & Amortization $ (9,000)
EBIT $ 27,000
Interest expense $ (7,000)
EBT $ 20,000
Income taxes $ (7,000)
Net profit $ 13,000

 At the company’s recent meeting, its CEO Mr Croydon Dias has announced to the firm’s divisional managers that he would like
to see an increase in Nandos’ revenue.

 In addition, Mr Dias has established a TARGET net profit of $26,000 under the 35% corporate tax rate.

 As the company’s CFO, you have calculated that Nandos’ operating costs make up 60% of the firm’s revenues.

 Given the change in the accounting standards, the Nandos’ depreciation and amortization expense will decrease by 25%.

 In addition, due to the recent change in monetary policy set by the government, you are expecting an increase in the firm’s
interest expense by 20%.

 The taxation office has confirmed that there will be no changes in the applicable corporate tax rate.

a. Determine the level of revenue Nandos has to generate in order to achieve the net profit target set by Mr Dias by constructing
the company’s TARGET income statement below. (4 points)

Sales  

Operating costs

EBITDA  

Depreciation & Amortization

EBIT  

Interest expense  

EBT

Income taxes  

Net profit

b. Discuss whether you agree with the statement: “When firms issue debt, it reduces their financial strength and flexibility”.
Explain the impact it has on the relevant financial statements. (1 point)

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Question 3 5 points Chapter 4
 As a financial analyst, you have been hired by Milky Queen Ltd., the leading dairy manufacturer in the GCC region, to evaluate
the firm’s financial performance over the past year.
 You have performed ratio analysis and come up with the following figures:

Equity-to-assets ratio 50%

Current ratio 1.75
Gross profit margin 35%
Total asset turnover 2.6
Days in AR outstanding 29.2
Inventory turnover ratio 15.0

 Assuming 365 days in a year, complete the balance sheet and sales information below:

1. Equity to asset = 50%

Equity = 50% of 36000 = 18000

Common stock = 18000-10500= 6500

ASsset turnover ratio = 2.6

Turnover = 34000*2.6 = 93600

Cogs = 93600*.35 = 32760

Inventory turnover ratio = 15

Sales/ avg inventory = 15

93600/15 = Avg inventory
Avg inventory = 6240

Accounts recievable turnover = 365/ 29.2

= 12.5
Credit Sales/ avg Debtors = 12.5
61200/12.5 = avg Debtors
Avg. Debtors = 4896

Current liabilities = 10000

Current assets = 17500

Cash =17500-6240-4896= 6364

Non- current assets = 36000- 17500 = 18500

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Question 4 5 points Chapter 5
 The Luxury Company is an established Italian multinational automaker that has its main headquarters in Milan, Italy.
 It was founded by Alexander Williams and incorporated on October 19, 1919 and had ever since been selling automobiles and
commercial vehicles under the Luxury brand to the world. The UAE has been Luxury’s loyal customer since the 1980s.
 You work as a financial analyst and have recently been placed onto an assignment with the Luxury Company, which is currently
evaluating a project – named KOA – with the following cash flows:

Year Cash Flows

1 $ 250

2 $ 500

3 $ 750

4 $ 1,000

5 $ 1,250

 The KOA project aims to further expand the firm’s presence in the MENA region and is expected to go on for 5 years.
 The applicable discount rate used by the Luxury Company is 15%.

a. Calculate the value of the cash flows presented in the table above in Year 0. (1 point)

year CF
217.391
1 250 3
378.071
2 500 8
493.137
3 750 2
571.753
4 1000 2
621.470
5 1250 9
2281.82
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b. Determine the value of the cash flows presented in the table above in Year 3. (1 point)

year CF
1 250 287.5
2 500 661.25
3 750 493.1372
4 1000 497.1767
5 1250 945.1796
2884.243

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c. Estimate the value of the cash flows presented in the table above in Year 6. (1 point)

year CF
1 250 287.5
2 500 661.25
3 750 1140.656
4 1000 1749.006
5 1250 2514.196
6352.609

d. Justify whether the cash flows presented in the table above represent an annuity. (1 point)
Explain the concept of annuity and its application in financial management.

No the above table of cashflow is not annuity, as annuity is equal cash flow at equal interval of time. The loan with equal emi is
example of anuity
e. Outline the difference between ordinary annuity and annuity due. Provide a real-life example of each. (1 point)

Ordinary annuity is the annuity due at the end of period and annuity due is the payment made at the begin of the period. The
loan can be ordinary or due.

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 BFIN 200 – Mid-term Exam – Formulas

BEP = EBIT / Assets

Current ratio = Current assets / Current liabilities

Debt to Assets = Debt / Assets

Debt to Equity = Debt / Equity

EBT = Net income / (1 – t)

Accounts payable
AP days (or DPO) =
COGS /365
AP turnover = COGS / Accounts payable

Accounts receivable
AR days (or DRO) =
Sales/365
AR turnover = Sales / Accounts receivable

EPS = Net income / No. shares

FA turnover = Sales / Net FA

Interest expense = Debt × Interest rate %

Inventory
Inventory days (or DIO) =
COGS/365
Inventory turnover = Sales / Inventory

NWC = Current assets – Current liabilities

NOWC = Current assets – (Current liabilities – Notes payable)

Operating profit margin = EBIT / Sales

Net profit margin = Net income / Sales

Quick ratio = (CA – Inventory) / CL

ROA = Net income / Assets

ROE = Net income / Equity

TA turnover = Sales / Assets

Taxes = t × EBT

TIE = EBIT / Interest expense

( )
FV FV 1/ n
FV =PV (1+ r )
n PV = n r= −1
(1+r ) PV

n=
ln ( FV
PV ) n=
72
r
n=
ln ( 2 )
ln (1+r )
ln (1+r )

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PVA=
PMT
r
1−
( 1
( 1+r )n ) FVA=
PMT
r
[ ( 1+ r )n−1 ]

C C1
PVA ∞= PVA ∞=
r r −g

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