St.

Mary`s University Department of

Accounting and Finance Financial
Management I
Group Assignment ( Group member 5-7 students )
Submission Date April 29 , 2023
Instructor name:. Anteneh Solomon
Chapter one: -
1. Define each of the following terms:
a. money market and capital market
b. primary market and secondary market
c. Profit maximization and wealth
maximization d. Debit security and equity
security
e. Agency cost and agency relationship
Chapter two: -
1. Define each of the following terms:
a. Liquidity ratios: current ratio; quick, or acid test, ratio
b. Asset management ratios: inventory turnover ratio; days sales outstanding
(DSO);
fixed assets turnover ratio; total assets turnover ratio
c. Financial leverage ratios: debt ratio; times-interest-earned (TIE) ratio; coverage
ratio d. Profitability ratios: profit margin on sales; earning per share (EPS) ratio;
return on total assets (ROA); return on equity (ROE)
e. Market value ratios: price/earnings (P/E) ratio; price/cash flow ratio; market/
book
(M/B) ratio; book value per share
2. Financial ratio analysis is conducted by managers, equity investors, long-
term creditors, and short-term creditors. What is the primary emphasis of
each of these groups in evaluating ratios?
P r o bl e m
The following data apply to Jacobus and Associates (millions of dollars)
1. Cash and marketable securities $ 100.00 Fixed assets $ 283.50 Sales
$1,000.00 Net income $ 50.00, Current ratio 3.0 DSO 40.55 days ROE 12%
a. Find Jacobs’s (1) accounts receivable, (2) current liabilities, (3) current assets,
(4)
total assets, (5) ROA, (6) common equity, and (7) long-term debt.
b. In part a, you should have found Jacobus’s accounts receivable = $111.1 million.
If Jacobus could reduce its DSO from 40.55 days to 30.4 days while holding other
things constant, how much cash would it generate? If this cash were used to buy
back
common stock (at book value), thus reducing the amount of common equity, how
would this affect (1) the ROE, (2) the ROA, and (3) the ratio of total debt to total
assets?
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2. 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
Average collection period =40 days
Total assets turnover: 1.5
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 25%

Inventory turnover ratio: 5.0

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 138,000 Retained earnings
97,500
Total assets $300,000 Total liabilities and equity
Sales
Cost of goods sold

3. The Kretovich Company had a quick ratio of 1.4, a current ratio of 3.0, and an
Inventory turnover of 6 times, total current assets of $810,000, Gross profit 408,000
and cash and marketable securities of $120,000. What were Kretovich’s annual
sales and it’s DSO? Assume a 365 -day year.

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4. Morton Chip Company: Balance Sheet as of December 31, 2010 (Thousands of
Dollars)
Cash $ 77,500 Accounts payable $129,000 Receivables 336,000 Notes payable
84,000
Inventories 241,500 Other current liabilities 117,000 Total current assets
$655,000 Total current liabilities $330,000 Net fixed assets 292,500 Long-term
debt 256,500 Common equity 361,000 Total assets $947,500 Total liabilities and
equity $947,500
Morton Chip Company: Income Statement for Year Ended December 31,
2010 (Thousands of Dollars)
Sales $1,607,500 Cost of goods sold 1,392,500 Selling, general, and administrative
expenses 145,000 Earnings before interest and taxes (EBIT) $ 70,000 Interest
expense
24,500 Earnings before taxes (EBT) $ 45,500 Federal and state income taxes (40%)
18,200 Net income $ 27,300

Ratio marathon Industry average

Liquidity Ratio 2
A/R turnover 35 days
Average collection 76 days
period fixed asset turn 12.1
over Total asset turn 3.0
over Profit margin ratio 1.2%
R.O.I 3.6%
Debt ratio 9.0%
Debt equity Ratio 60%

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Chapter-3

1. Find the value of $10,000 earning 5% interest per year after two years using:

a) Simple interest
b) Compound interest

2 If on the day her daughter was born, Mary deposited $10,000 in Saving Account
that guarantees to accumulate interest quarterly at 10% a year. What will be the
th
amount in the Savings Account on her daughter’s 18 birthday?

3 Ato Abera deposited $ 10,000 in a fund that will earn interest at 8%

compounded quarterly for the first four years, and 10% interest compounded
semiannually for the next 6 years. How much will Abera have in the fund at the
end of 10 years?

4: You borrowed $1,584 and must repay $2,000 in exactly 4 years from today.
Interest is compounded annually. What is the interest rate of the loan?

5: If you can buy a security with a 5 percent interest rate at a price of $78.35 today,
how long will it take for your investment to return $100?

6: What will $1,000 be worth at the end of one year when the annual interest rate is
12% when interest is compounded?
a) Annually
b) Quarterly
c) Monthly
d) Daily

7: How much do I need to invest at 8% per year, in order to have $10,000 in___________?
a) One year
b) Two years
c) Ten years

8. Ali wants to deposit cash in a Saving Account at the beginning of year 1 so that
he will have $50,000 at the end of Year 6. How much must Ali deposit at the
beginning of Year 1 if interest rate is 6% compounded semi-annually for the first
three years and 8% compounded quarterly for the next three years.
9. What is the present value of a 5-year annuity, if the annual interest is 6%, and the
annual payment is $1,000?

10. You borrow $60,000 and repay in 8 equal a n n u a l installments of $12,935 with
the first payment made exactly 1 year later. To the nearest percent, what rate of
interest are you paying on your loan?

11. H-Corporation sold a $1,000,000 bond issue at the beginning of 1994 in

order to obtain funds for expansion. The bonds were issued at face values of
$1,000(for a single
bond) with an original maturity of 10 years and a coupon rate of 10%. If an investor
requires a 12% rate of return on these securities, what would be the value of these
bonds to the investor in 1994? Assume the bond is to be purchased at the end of 1994
and that the first interest payment would be received at the end of 1995.