DEPARTMENT OF FINANCE & BANKING

FIRST HOUR EXAM ,FALL SEMESTER 2020

FINANCE 1300

STUDENT NAME------------------------------

STUDENT NUMBER----------------------------

INSTRUCTIONS

READ THE QUESTIONS CAREFULLY

EACH QUESTION HAS THE TIME NEEDED TO BE SOLVED AND ITS MARK

YOU HAVE 5 QUESTIONS AND 16 MULTIPLE CHOICE

TOTAL TIME 80 MINUTES

Question 1

Prepare a Cash Flow statement for the ABC Inc. for the year ended Dec. 31, 2015
This question needs only 15 minutes (15 points)

ABC Inc. 2015 Income Statement ($000)

Sales 1,000
Cost of Goods sold 650
Gross Profit 350
Depreciation expense 100
Selling expense 100
Total operating expenses 200
Operating Profit 150
Interest expense 50
Earning Before Taxes 100
Tax expense 40
Net Profit after Tax 60

ABC Inc. Balance Sheet ($000)

Assets 2014 2015
Cash 50 60
Account Receivable 500 520
Inventory 750 770
Total Current Assets 1,300 1,350
Gross Fixed Assets 600 750
Accumulated Depreciation 150 250
Net Fixed Assets 450 500
Total Assets 1,750 1,850
Liabilities
Account Payable 590 615
Notes Payable 100 75
Accruals 10 20
Total Current Liability 700 710
Long Term Debt 300 360
Total Liabilities 1,000 1,070
Capital 650 650
Retained Earnings 100 130
Total Owners’ equity 750 780
Total Liabilities and 1,750 1,850
Owners’ Equity
Question 2
Use the following information to calculate the dividends paid in 2015.
5 minutes (2 points)

True Sandpaper Co.

Balance Sheets
For the Years Ended 2014 and 2015
Question 3
Fill the following balance sheet for the Range Company using the following information: Debt to
Assets = 60
Quick Ratio = 1.
Asset Turnover = 5
Fixed Asset Turnover = 12.037
Current Ratio = 2
Average Collection Period = 17.0708 days

20 minutes (10 points)

Cash Current liability

Account receivables Bonds payable
Inventory Total liability
Total current assets Equity
Capital(fixed)asset
Total assets 325,000 Total liability&Equity
Question 4
5 MINUTES , 5 POINTS

Alamco Plastics has the following data:

Assets: $100,000; Profit margin: 6.0%; Tax rate: 40%; Debt ratio: 40.0%; Interest rate: 8.0%:
Total assets turnover: 3.0.
What is Lone Star's EBIT?

Question 5
5 MINUTES 3 POINTS

The management of Piadico is considering the purchase of an automated bottling machine for
$61,000. The machine would replace an old place of equipment that generates $5,000 per year .
The new machine would save $10,000 per year for 10 years operate. The old machine currently
in use could be sold now for a scrap value of $20,000. Is it good to do the replacement or not
show calculations
Multiple choice questions:(15 points)
1. A financial statement is a(n):
A. hybrid statement of cash flows
B. set of ratios which depict relationships between a firm’s financial
items.
C. itemized forecast of a company’s income, expenses, and capital
needs
D. written report that quantitatively describes a firm’s financial health
estimate of a firm’s future income and expenses

2. ( income after tax - Preferred stock Dividend ) / Number of common shares outstanding=
A. Dividend per share
B. Share book value
C. Earnings per share
D. Market value per share
E. None of the above

3. Net working capital equals

A. Total assets minus total liabilities.
B. Currents assets minus currents liabilities.
C. Currents assets minus owners’ equity.
D. Owners’ equity minus total liabilities.

4. Assume the following data: Earnings per share = $6; Dividends per share = $3; Price per
share = $60. Calculate the P/E ratio.
A. 16.7
B. 10
C. 25
D. 20

5. Allocation of the historic costs of fixed assets against the annual revenue they generate
over time is called ________.
A. arbitraging
B. depreciation
C. securitization
D. amortization
Use this table to answer the next two questions (6-8):
MACRS RATE
Recovery year 3 years 5 years 7 years 10 years
1 33% 20% 14% 10%
2 45 32 25 18
3 15 19 18 14
4 7 12 12 12
5 12 9 9
6 5 9 8
7 9 7
8 4 6
9 6
10 6
11 4

6. Under MACRS, an asset which originally cost $100,000 is being depreciated using a 5-
year normal recovery period. The accumulated depreciation expense in year 3 is
________.
A. $15,000
B. $18,000
C. $57,000
D. $71,000

7. Under MACRS, an asset which originally cost $100,000, incurred installation costs of
$10,000, and has an estimated salvage value of $25,000, is being depreciated using a 3-
year normal recovery period. What is the depreciation expense in year 1?
A. $32,750
B. $36,300
C. $20,000
D. $22,000

8. Under MACRS, an asset which originally cost $100,000 is being depreciated using a 7-
year normal recovery period. The book value in year 5 is ________.
A. 31,000
B. 22,000
C. 4000
D. None of the above

9. Cash flows directly related to sale and production of the firm’s products and services are
called cash flow from ________.
A. Business activities
B. Investment activities
C. Financing activities
D. Operating activities
10. If a firm issues 10,000 shares of common stock with a par value of $5 and for a sales price
of $15, what amount would be recorded in the paid-in capital account?
A. $10,000
B. $15,000
C. $50,000
D. $100,000

11. Suppose Ningbo Steel had sales revenue of $10,000 sales revenue, cost of goods
sold of $5,000, operating expenses of $3000, interest expense of $1,000, a tax rate
of 20%, and 1,000 shares of common stock outstanding. Based on this
information, net profit after tax was:
A. $1,200
B. $1,000
C. $800
D. $400
E. none of the above

12. Which items would be classified as intangible assets?

A. Working capital, patents, copyrights.
B. Goodwill, trademarks, franchises.
C. Land, goodwill, copyrights.
D. Tax liability, prepaid expenses, patents.

13. Which statement best describes retained earnings account?

A. The retained earnings account is equal to the cash account less dividends.
B. Retained earnings are funds a company has chosen to reinvest in the business
rather than pay out to stockholders in dividends.
C. Retained earnings represent obligations on the firm.
D. Retained earnings is the measurement of all distributed earnings.

14. What relationship exists between cost of goods sold and gross profit?
A. Only service companies report both cost of goods sold and gross profit.
B. Cost of goods sold plus gross profit equals sales.
C. Cost of goods sold minus gross profit equals operating profit.
D. Cost of goods sold equals gross profit.
E. Cost of goods sold equals operating profits plus gross profit.

15. Which items below would be classified as operating expenses?

A. Advertising, selling , administrative and general expenses.
B. Interest expense, interest income, rent expense.
C. Accounts payable, lease payments, depreciation.
D. Depreciation, capital leases and interest expense.
16. In general, What does a decreasing inventory turnover ratio usually indicate about a firm?
A. The firm is selling more inventory.
B. The firm is managing its inventory well.
C. The firm is inefficient in the management of inventory.
D. Both (a) and (b).