Financial

Management
Strategy-
MBA-731

UNITY UNIVERSITY Work-sheet

Page 1 of 8
CHOOSE THE BEST ALTERNATIVE FROM A GIVEN ALTERNATIVES
1. One of the following cannot increase the company cash flow as key practice in
company
a. Focus on technology to understand customers
b. Innovation and differentiation
c. Skilled level of employees at all level
d. All except c
e. All
2. Corporate finance is commonly practiced except in
a. Proprietorship
b. Corporation
c. Partnership
d. B and C
e. All
3. One of the following is not a challenge in managing corporation
a. Growing capital demand
b. Management challenge
c. Maximizing the wealth of individual share holders
d. All except C
e. All
f. None
4. One of the following is true
a. Shareholders are the owners of a corporation, and they purchase stocks
because they want to earn a good return on their investment with undue risk
exposure
b. Finance management primary objective is bond holder’s wealth maximization.
c. If the market price reflects all relevant information, then the observed price is
also the intrinsic, or fundamental, price.
d. all
5. Increasing the value of share is fundamental because
a. To a large extent, the owners of stock are society
b. Stock price maximization requires efficient, low-cost businesses that produce
high-quality goods and services at the lowest possible cost.
c. Companies that successfully increase stock prices also grow and add more
employees, thus benefiting society.
d. all
6. One of the following capital allocation process demands brokers as facilitators of the
transfer of fund
a. Direct transfer of money and securities
b. Indirect transfer of capital
c. Financial intermediaries
d. None
7. The rate of return required by the investor known as

Page 2 of 8
 a. Cost of capita
b. Cost of equity
c. Weighted average cost of capital
d. All
e. None
8. In leveraged industry external financing can increase company return on investment..
one of the following sentence do not go with this assumption
a. Since Interest is deductible; the use of debt lowers the tax bill and leaves more
of the firm’s operating income available to its investors.
b. The leveraged company operating income as a percentage of assets less than
the interest rate on debt.
c. this would maximize the wealth of individual share holder
d. all
e. None
9. one of the following logic is true
a. Creditors prefer low debt ratios because the lower the ratio, the greater the
cushion against creditors’ losses in the event of liquidation.
b. Stockholders, on the other hand, may want more leverage because it magnifies
expected earnings
c. Creditors may be reluctant to lend the firm more money because a high debt
ratio is associated with a greater risk of bankruptcy.
d. all are true
e. None
10. The extent to which a firm uses debt financing, or financial leverage, has important
implication. therefore you do not agree with one of the following
a. By raising funds through debt, stockholders can maintain control of a firm
while limiting their investment.
b. Creditors look to the equity, or owner-supplied funds, to provide a margin of
safety, so the higher the proportion of the total capital that was provided by
stockholders, the less the risk faced by creditors.
c. If the firm earns more on investments financed with borrowed funds than it
pays in interest, the return on the owners’ capital is magnified, or “leveraged.”
d.

Page 3 of 8
QUESTION FROM NUMBER 8-15 MUST BE ANSWERED FALLOWING THIS TABLE

MicroDrive Inc.: Ba la nce Sheets a nd Income Sta tements for Yea rs Ending Decembe r 31 (Millions of Dolla rs,
Except for Pe r Sha re Da ta )

Asse ts 2010 2009 Lia bility a nd Equity 2010 2009

Ca sh a nd equiva lent 10 15 Accounts pa ya ble 60 30
Shot-tem investments 0 65 Notes Pa ya ble 110 60
Accounts receiva ble 375 315 Accrua ls 140 130
Inventories 615 415 Tota l current lia bilitie s 310 220
TOTALCURRENT ASSET 1000 810 Long term bonds 754 754
Net pla nt a nd equipments 1000 870 TOTALLIABILITY 1064 800
Preferred stock(400,000 40 40
sha res)
Common stock(50,000,000 130 130
sha res)

Reta ined e a rrings 766 710

Tota l common equity 896 840
TOTALASSETS 2000 1680 TOTALLIABILITIES AND 2000 1680
EQUITY

Page 4 of 8
INCOME STATEMENT OF A COMPANY
2010 2009
Net sa les 3000.0 2850.0
Opera ting costs excluding deprecia tion a nd a mortiza tion 2616.2 2497.0
Ea rning before interest, ta xes, deprecia tion a nd a mortiza tion(EBITDA) 383.8 353.0
Deprecia tion 100 90.0
Amortiza tion 0.0 0.0
Deprecia tion a nd a mortiza tion 100 90.0
Ea rnings before interest a nd ta xes (EBIT, or opera ting income) 283.8 263
Less interest 88.0 60
Ea rnings before ta xes (EBT 195.8 203
Ta xes (40%) 78.3 81.2
Net income before preferred dividends 117.5 121.8
Preferred dividends 4.0 4.0
Net income 113.5 117.8
Common dividends 57.5 53.0
Addition to reta ined ea rnings 56.0 64.8
Per-Sha re Da ta
Common stock price 23.0 26.0
Ea rnings per sha re (EPS) 2.27 2.36
Book va lue per sha re (BVPS) 17.92 16.8
Cash flow per sha re(CFPS) 4.27 4.16
a / The bonds ha ve a sinking fund requirement of $20 million a yea r. b/ The costs include lea se payments of $28 million a yea r.

1. what is the company DSO of 2009 the industry average is 46



A. 39.30 C. 37.20
B. 40.34 D. None

Please analyze the

result____________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
________________

2. what is debt to equity ratio of company

A. 0.90 C. 0.67
B. 0.80 D. none

Page 5 of 8
 Please analyze the
result____________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
________________________________________________________

3. What is the market debt ratio? industry average is 35%

A. 40.09% C. 38.09%
B. 52.00% D. None

Please analyze the

result________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________

4. what is basic earning power ratio the IA is =16%

a. 17.20% c. 16.20%
b. 15.62% d. NONE

Please analyze the

result________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________

5. what is the Return on Equity te industry average is 10%

A. 14,80 C. 15.02
B. 14.02 D. none

Please analyze the

result________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________

Page 6 of 8
 ______________________________________________________________________________________________
____________________________________

6. what is Price cash flow ration the industry average is 6.8

A. 7.20 C. 4.50
B. 6.25 D. none

Please analyze the

result________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________

7. what is Price per earning s ratio the industry average is 8.12

A. 9.80 C. 11.035
B. 10.90 D. none

Please analyze the

result________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________

8. What is price per earning before interest, tax and depreciation per share? The industry
average is 2.5.

A. 3.25 C. 2.90
B. 3.40 D. none

Please analyze the

result________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
____________________________________

Page 7 of 8
 9. complete the balance sheet and sales information in the table that follows for
Hoffmeister Industries using the following financial data:
 Debt ratio: 50%
 Quick ratio: 0.80
 Total assets turnover: 1.5
 Days sales outstanding: 36.5 days
 Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 25%
 Inventory turnover ratio: 5.0 a

Calculation is based on a 365-day year.

Balance Sheet

Cash _________ Accounts payable ______________

Accounts receivable _________ Long-term debt 60,000

Inventories ________ Common stock _____________

Fixed assets _________ Retained earnings 97,500

Total assets $300,000 Total liabilities and equity ------------

Sales __________ Cost of goods sold ------------------

Page 8 of 8