MICRO-LINK INFORMATION TECHNOLOGY AND BUSINESS COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSIGNMENT FOR ADVANCED FINANCIAL MANAGEMENT
General direction;
 Your assignment must be submitted in HAND WRITING. It is strictly forbidden to
submit it by writing in computer and doing so will automatically disqualify the
entire result.
 The date of submission is on the DATE OF YOUR FINAL EXAMINATION.
Submitting before or after the date of examination is not acceptable.
1. Discuss the following terms;
a) What is the meaning of finance?
b) What is the meaning of financial management?
c) What are the principles of financial management?
d) What are the scopes of financial management?
e) What are the functions of financial management?
f) What is the ultimate objective of financial management?
2. What are the two methods of raising finance? Discuss each of them in detail by giving
examples.
3. A firm can meet its financial requirements from a variety of sources. What are the
five major sources of finance? Discuss each of the sources in detail.
4. Discuss the following;
a) What is the meaning of financial statement? Discuss it by giving examples.
b) What are the various methods used for making financial statement analysis?
c) Who are the users of financial statements? In what way the financial statement is
important to each and every user? Discuss in detail.
5. Data for the Northern Star Corporation is provided below:
Northern Star Corporation
Balance Sheet
As of December 31, 2017 (in millions)
Cash $100 Accounts payable $300
Marketable securities 300 Other current liabilities 200
Accounts receivable 600 Long-term debt 500
Inventory 1,000 Common stock 2,000
Net plant and equipment 4,000 Retained earnings 3,000
Total assets $6,000 Total liabilities and equity $6,000

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 Northern Star Corporation
Income Statement
For Year Ending December 31, 2017(in millions)
Sales $12,000
Cost of goods sold* 10,800
Gross profit $1,200
Administration expenses 150
Earnings before interest and taxes $1,050
Interest expense 50
Earnings before taxes $1,000
Taxes 400
Net income $600

Required: Calculate the following ratios for the Northern Star Corporation:

a) Current ratio h) Gross profit margin

b) Quick ratio i) Operating profit margin
c) Inventory turnover ratio j) Net profit margin
d) Receivable turnover ratio k) Debt to asset ratio
e) Total asset turnover ratio l) Debt to equity ratio
f) Average age of inventory (considering 365 days) m) Return on asset
g) Average collection period (considering 365 days) n) Return on equity

6. What is the meaning of leverage? Discuss the two types of leverages in detail.
7. The following financial data belongs to Delight Company
Sales (units ) 60,000
Price per unit Br.4
Variable cost per unit Br.1.5
Fixed cost Br.100,000
Interest Br.30,000
Preferred stock dividend Br. 3000
Number of common shares outstanding 10,000
Tax rate 40%

Required: - Compute the following based on the above information;

a) Operating leverage
b) Financial leverage
c) Combined ( Total leverage)
8. What are the various types of cost classifications? Discuss each of them in detail.
9. Suppose that a manufacturer of shoe has a fixed cost of birr 60,000 and variable cost
of birr 2 per unit produced and sold. The selling price is expected to be birr 5 per unit.

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Required: - Compute the following;
a) Determine the revenue and cost equation.
b) Calculate profit if 25,000 units are made and sold
c) Find the break even quantity
d) Find the break even volume of sales
e) Draw or construct the break-even chart, label the cost and revenue lines, the
fixed cost and break-even point.
10. What are the two main methods used for evaluation of project investment
proposals? Discuss the difference between them in detail.
11. Assume that the expected cash inflows of a project which has Birr 100,000 initial
cash outlay or investment are as follow.
Year 1 2 3 4 5
Cash ETB ETB ETB ETB ETB 30,000
inflows 20,000 30,000 40,000 50,000
If the investor’s require rate of return (cost of capital) is 12%, than calculate the
following (use the following table value)
a) Payback period
b) Net present value
c) Profitability index
d) Discounted payback period
e) Interpret each of the above result
Time value of money table
Period 1 2 3 4 5
12% 0.8929 0.7972 0.7118 0.6355 0.5674
PVIF
15% 0.8696 0.7561 0.6575 0.5718 0.4972

12. What is the meaning of capital structure? What is optimal capital structure and how
it would be attained? Discuss it in detail.
13. What is the meaning of cost of capital? Discuss the difference between specific cost
of capital and weighted average cost of capital (WACC).
14. Consider the following book value capital structure of Red Fox Corporation.
Bonds (ETB l, 000 par) ETB 120,000,000
Preferred stock (10%, ETB 500 par) ETB 40,000,000
Common stock (ETB 400 par) ETB 160,000,000
Total ETB 320,000,000
If the after tax cost of debt is 7%, common stock dividend of next period is ETB 40
which is expected to grow by 6% yearly in the next time, then compute WACC of the
Corporation.

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