Answer A1:

To calculate the cash fixed costs (CFC), you need to add up all the cash expenses, excluding non-cash
expenses like depreciation. In this case, we have:

Administrative expenses: $200,000

Marketing expenses: $180,000
Interest expenses: $20,000

CFC = Administrative expenses + Marketing expenses + Interest expenses

CFC = $200,000 + $180,000 + $20,000
CFC = $400,000

So, the correct answer is (b) $400,000.

Answer A2:

To determine the cash conversion cycle, we need to calculate the sum of the purchase-to-payment
conversion period, inventory-to-sale conversion period, and subtract the sale-to-cash conversion
period:

Cash Conversion Cycle = Purchase-to-payment conversion period + Inventory-to-sale conversion

period - Sale-to-cash conversion period
Cash Conversion Cycle = 76.8 days + 112.9 days - 57.1 days
Cash Conversion Cycle = 189.7 - 57.1
Cash Conversion Cycle = 132.6 days

None of the given options match the calculated value. However, the closest option is (e) 133.9 days.

Answer A3:

To calculate the sustainable growth rate, we need to find the return on equity (ROE) and the retention
ratio (b).

ROE = Net Income / Beginning Equity

ROE = $320,000 / $1,600,000
ROE = 0.2 or 20%

Dividends paid = $80,000

Earnings not paid as dividends (retained earnings) = Net Income - Dividends paid
Retained earnings = $320,000 - $80,000
Retained earnings = $240,000

Retention ratio (b) = Retained Earnings / Net Income

b = $240,000 / $320,000
b = 0.75 or 75%

Sustainable Growth Rate = ROE × Retention Ratio

Sustainable Growth Rate = 0.2 × 0.75
Sustainable Growth Rate = 0.15 or 15%

So, the correct answer is (b) 15%.

Answer A4:

To calculate the additional funds needed (AFN), we first need to find the change in assets due to sales
growth and the change in retained earnings.
Projected sales = Current sales × (1 + Sales growth rate)
Projected sales = $10,000,000 × (1 + 0.2)
Projected sales = $12,000,000

Change in assets due to sales growth = (Projected sales - Current sales) / Current sales × Total assets
Change in assets due to sales growth = ($12,000,000 - $10,000,000) / $10,000,000 × $7,000,000
Change in assets due to sales growth = $1,400,000

Payout ratio = Dividends / Net Income

Payout ratio = $200,000 / $500,000
Payout ratio = 0.4 or 40%

Retention ratio = 1 - Payout ratio

Retention ratio = 1 - 0.4
Retention ratio = 0.6 or 60%

Change in retained earnings = Retention ratio × Net income

Change in retained earnings = 0.6 × $500,000
Change in retained earnings = $300,000

Now we can calculate the AFN:

AFN = Change in assets due to sales growth - Change in spontaneous liabilities - Change in retained
earnings
AFN = $1,400,000 - $200,000 - $300,000
AFN = $900,000

None of the given options match the calculated value. However, the closest option is (d) $960,000.

Answer A5:

Return on Equity (ROE) = Return on Assets (ROA) × Equity Multiplier

ROE = 12% × 3.0
ROE = 36%

Sustainable Growth Rate (SGR) = ROE × Retention Ratio

Given SGR is 18%, we can solve for the retention ratio:

Retention Ratio = SGR / ROE
Retention Ratio = 18% / 36%
Retention Ratio = 0.5 or 50%

So, the correct answer is (e) 50%.

Answer A6:

First, calculate the after-tax operating profit:

After-tax operating profit = Operating profit × (1 - Tax rate)
After-tax operating profit = $1,200 × (1 - 0.4)
After-tax operating profit = $1,200 × 0.6
After-tax operating profit = $720

Next, calculate the cost of capital:

Cost of capital = Total financial capital × WACC
Cost of capital = $9,000 × 0.1
Cost of capital = $900
Finally, calculate the Economic Value Added (EVA):
EVA = After-tax operating profit - Cost of capital
EVA = $720 - $900
EVA = -$180

So, the correct answer is (d) - $180.