Department of Accounting and Finance

Financial management I Maximum Value: 20 %

Time Allowed 1 Hr. January, 2021
Part One: True /False Items: Write “True” if the statement is correct & write “False” if the
statement is incorrect.

1. Value ratio is the most significant measures of a firm's performance

2. Profit maximization takes in to consideration of risk related to uncertainty of returns
3. The primary goal of financial management is value maximization
4. Agency problem is the potential agreement between the manager and owners of the firm
5. During inflation, FIFO is important over LIFO for tax saving
6. Liquidation is a firm’s ability to pay long term debt as they come due

Part Two: Multiple choices items : Choose the best answers from the given alternatives

1. If KK Co. have debt to equity ratio of 30% what will be the company’s debt to asset ratio?
A. 29.1% B. 70% C. 41.1% D. 23.1%
2. One of the following statements clearly defines financing and dividend policy decision?
A. Both financing and dividend policy decision have identical concepts
B. The latter shows the mix of asset while the former tells about the distribution of net income
C. Both financing and dividend policy decision is merely used for private business
D. The former concern on choosing the mix of sources, the latter deals with payment of stakeholders
E. None of the above
3. XYZ Co. has a gross profit margin of 35% on the net sales of Br. 50, 000. If the total assets and total
expenses including tax is Br. 100, 000 and Br.15, 000 respectively. What will be NPM and ROI?
A. 5% and 2. 5% B. 50% and 10% C. 10% and 5% D. 17.5% and 5%
4. Under liberal credit policy:
A. Short time credit period for customers
B. There is high amount of cash discount
C. There is sufficient effort of cash collection
D. Huge amount of account receivable
5. Financial management is mainly concerned with
A. Arrangement of funds
B. All aspects auguring and utilizing means of financial resources for firm's activities
C. Efficient management of every business
D. Time value of money
6. Why prepaid expenses are excluded from computation of quick acidic test ratio?
A. Because they are not asset rather they are expense
B. Because they can easily converted to cash
C. Because they cannot available to meet current debts
D. Because they have no importance for the firms
7. Limitation of financial ratios may include all of the following except…..?
A. Different accounting principles can distort the ratio
B. Inflation and deflation affect financial ratio
C. To measure the ability of the firm to pay their liabilities
D. Seasonal factors can affect financial ratio
8. Accounting is different from finance, because:
A. Accounting and finance are important to any form of business
B. Finance is a sub function of accounting
C. Finance measure funds based on cash basis and accounting treat fund by accrual principle
D. All
9. One of the following is odd from others?
A. Over the counter market B. An auction market C. Dealer market D. None
1 Jinka University, College Of Business And Economics, Department Of
Accounting And Finance
Part three: Work out: Assume the following information is for XYZ Co.

XYZ, Balance Sheets

2010 2011
Assets
Cash 243,000 288,000
Marketable Securities 88,000 51,000
Prepaid insurance 27,000 30, 000
Accounts Receivables 500,000 365,000
Inventories 189,000 300,000
Land and Buildings 2,072,000 1,903,000
Machinery and Equipment 1,866,000 1,693,000
Supplies 17,000 23,000
Building and furniture 358,000 316,000
Less Acc. Depreciation (2,295,000) (1,000,000)
Total Assets 3,065,000 3,969,000
Liabilities and Owners' Equity
Accounts Payable 382,000 270,000
Short term Notes Payable 79,000 99,000
Mortgage payable 20,000 28,900
Accruals 259,000 114,000
Bond payable 45,000 50,000
Salary payable 23,340 27,730
Total Liabilities 826,340 580, 630
Total Stockholders' Equity 2,238, 660 3,379,370
Total Liabilities and Stockholders' Equity 3,065,000 3,969,000
Additional information:

 Net sales……………………….Br. 500,000 Cost of Goods sold………………..Br. 240,000

 Operating expense…………….Br. 100,000 Interest expense………………Br. 40,0000
A. Current ratio E. Average account receivable turnover ratio
B. . Quick acidic test ratio F. Cash coverage ratio
C. Average age of inventories G. Operating Profit Margin

Bounus: What is financial management? (1 mark) :______________________________________

____________________________________________________________________________

Answer sheet

Name:______________________________________ID________________ section ________

Part one: True/false items

1. 2. 3. 4. 5. 6.
Part two: Multiple choices items

1. 2. 3. 4. 5.
6. 7. 8. 9.
Part three: Workout

1.

2 Jinka University, College Of Business And Economics, Department Of

Accounting And Finance
3 Jinka University, College Of Business And Economics, Department Of
Accounting And Finance