QUEENS’ COLLEGE DISTANCE EDUCATION DIVISION

TEL. 011-8-12-19-82

ASSIGNMENT
ON
Financial Management II

Date: - _____________

Total Weight: - 30 %

Name: - ____________________________ ID NO: - ______________

Department: -_______________ Study center: -_____________ Entry year: - ___________

Program: DEGREE
This is the only assignment of this course.

This assignment is to be completed and submitted to the office of your center. Do not
attempt the assignment until you are certain that you have understood the units it covers and
have revised your self-test exercises and learning activities, and other necessary references.

If you have any question about the units and activities, state the item/s clearly on a separate
sheet of paper and attach to your assignment paper.
 Part I.Work Out (show the necessary steps)
1. A firm’s sales are Birr 450,000 Cost of good sold is Birr 240,000 and inventory is Birr 90,000
A. Calculate its inventory turn over
B. Calculate the firm’s gross margin percentage
The following formula/equation is used to compute gross profit ratio:

When gross profit ratio is expressed in percentage form, it is known as gross profit margin or
gross profit percentage. The formula of gross profit margin or percentage is given below:

The basic components of the formula of gross profit ratio (GP ratio) are gross profit and net
sales. Gross profit is equal to net sales minus cost of goods sold. Net sales are equal to total
gross sales less returns inwards and discount allowed. The information about gross profit and
net sales is normally available from income statement of the company.

Also to calculate gross profit= net sales-cost of goods sold

gross profit= 450,000–240,000

gross profit= 210,000

When gross profit ratio is expressed in percentage form, it is known as gross profit margin or
gross profit percentage. The formula of gross profit margin or percentage is given below:

210,000/450,000*100= 47%

The GP ratio is 47 %.

TURNOVER:

Total sales/Inventory in hand

240,000/90,000= 2.7 or let’s say 3

 2. A bond has Birr 10,000 face value and 10 years to maturity. The bond promises to pay a
coupon of 1,000Br. The bond interest is paid annually. The interest rate for similar bonds is
12%.
Required: Determine the following:
A. What is the bond’s terminal value
B. Determine the coupon rate
C. What is the maturity period
D. What is the yield to maturity
E. Determine the value of the bond

Given
Face value = 10,000
Maturity years= 10 years
Coupon=1,000Br
interest rate =12%.

The bond’s terminal value

coupon rate

maturity period

yield to maturity

value of the bond

Using the formula: • B = PV of annuity + PV of lump sum • B = 100[1 – 1/(1.11)5 ] / .11 + 1,000 /
(1.11)5 • B = 369.59 + 593.45 = 963.04  Using the calculator: • N = 5; I/Y = 11; PMT = 100; FV
= 1,000 • CPT PV = -963.04
3. Determine the price of a stock under the following unrelated cases:
i.The stock’s divided just paid is 5 Br and the dividend has a zero growth rate and the required
rate of return is 10%

5(1 + 0)
0.01 − 0
5
0.01
=500 Br
ii. The stock’s dividend just paid is 6% Br and the expected growth in dividend is 6% and
the required rate of return is 4%

𝟔(𝟏 + 𝟎. 𝟎𝟔)
𝟎. 𝟎𝟒 − 𝟎. 𝟎𝟔
𝟔. 𝟑𝟔
−𝟎. 𝟎𝟐
=-318Br
 4. The financial statements of Harbin Co. are given below

Harbin Co.
Balance Sheet
Dec 31, 2007
Cash 130,000 Account payable 120,000
Marketable securities 150,000 Notes payable 100,000
Accounts receivable 120,000 Accruals 20,000
Inventories 140,000 Long-term liabilities 100,000
Net fixed assets 300,000 Stock holder’s equity 500,000
Total 840,000 Total 840,000

Harbin Co.
Income Statement
For the year ended Dec 31, 2007
Revenue (Net sales) 600,000
Cost of goods sold 300,000
Operating expense 100,000
Earning before interest and tax 200,000
Interest 50,000
Earning before tax 150,000
Tax 40,000
Net income 110,000

Using the above information, calculate the following ratios and decide whether they are acceptable
or not acceptable by comparing the results with the given industry average.

Type Ratio Computed Industry average Acceptable Not acceptable

Quick ratio 6 times
Net profit margin 12%
Current ratio 4 times
Return on equity 6%
Receivable turnover 6 times
Return on assets 10%
DSO 20 days
Times interest earned 3 times
Fixed asset turnover 5 times
Inventory turnover 18 times
Total asset turnover 3 times
Gross profit margin 15%
Basic earning power 10%

Industry Not
Type Ratio Computed Acceptable
average acceptable

Quick ratio=(CA –
√
Inv)/CL=300,000- 1.60 6 times
140000/1000,000
Net profit √
0.183333333=18% 12%
margin=NI/Sales=110000/600000
Current √
3times 4 times
ratio=CA/C=3000000/1000000
Return on √
0.22=22% 6%
equity=NI/OE=110000/500000
Receivable turnover=net
√
sales/account 5times 6 times
receivables=600,000/120,000
Return on assets= NI/Asst
0.071428571=7% 10% √
=600,000/8400000
DSO=AR/(Sales/365)
48.66666667 days 20 days √
=120000/(900000/365)
Times interest earned=EBIT/Int
4times 3 times √
=200000/50000
Fixed asset turnover=-Sales/Fixed
3times 5 times √
Asst=900000/300000
Inventory turnover=CGS/Inv
2.142857143times 18 times √
=300000/140000
Total asset turnover=Sales/Total
1.071428571times 3 times √
Asst =900000/840000
Gross profit margin=(Sales –
CGS)/Sales=(900000- 0.666666667=66% 15% √
300000)/900000
Basic earning power=EBIT/Total
0.238095238=23% 10% √
Asst =200000/840000