FIN 430 / INTRODUCTION TO CORPORATE FINANCE

SAMPLE QUESTION AND ANSWER ON PRO FORMA BALANCE SHEET

 Maju Lasak Company
Pro forma balance sheet as at 31 December 2018 (RM)
Cash 3,105,000 Account payable 8,280,000
Accounts receivables 8,692,500 Notes payable 4,025,000
Inventories 10,867,500 Accruals 5,175,000
Net fixed assets 17,595,000
Mortgage bonds 4,990,000
Common stock 5,750,000
Retained earnings 4,905,000
Additional fund 7,135,000
Total assets 40,260,000 Total liabilities and 40,260,000

Workings:
New Retained earnings = Last yr retained earnings + additional retained earnings
= Last yr retained earnings + [ New sales x NPM x (1 – DOPR) ]
= 3,105,000 + [ 15,000,000 x 0.30 x (1 – 0.60) ]
= 3,105,000 + 1,800,000
= RM4,905,000

NPM 2017 = Net profit

Sales
= RM3m
RM10m
= 0.30 or 30%

NPM 2018 = 30%

DPOR 2017 & 2018 = 60%

QUESTION 2

Ali Sdn Bhd

Cash budget for April , May and June 2014

Mar April May June July

Sales 60,000 60,000 75,000 90,000 105,000
Cash receipts:
70% sales - cash 42,000 52,500 63,000
15% sales - 1 mth after 9,000 9,000 11,250
15% sales - 2 mth after 9,000 9,000
Interest 2,500 2,500 2,500
Total cash receipts 53,500 73,000 85,750

Purchases 36,000 45,000 54,000 63,000

Cash disbursements:
50% purchases - cash 22,500 27,000 31,500
50% purchases - 1 mth after 18,000 22,500 27,000
Adminstrative 7,000 7,000 7,000
Rental 2,000 2,000 2,000
Wages 8,000 8,000 8,000
Equipment 30,000
Tax 8,000
Total cash disbursements 65,500 66,500 105,500

Net cash flow - 12,000 6,500 - 19,750

Beginning cash balance 20,000 15,000 21,500
Ending cash balance before borrowing 8,000 21,500 1,750
Minimum cash balance 15,000 15,000 15,000
Surplus/borrowing - 7,000 6,500 - 13,250
Ending cash balance after borrowing 15,000 21,500 15,000

(20 marks)
QUESTION 3

MIS Trading
Cash budget for April , May and June 2022

Feb Mar April May June July

Sales 260,000 320,000 340,000 380,000 220,000 180,000
Cash receipts:
40% sales - cash 104,000 128,000 136,000 152,000 88,000
20% credit sales - same mth 40,800 45,600 26,400
65% credit sales - 1 mth after 124,800 132,600 148,200
15% credit sales - 2 mth after 23,400 28,800 30,600
Dividend 6,000
Total cash receipts 325,000 359,000 299,200

Purchases 128,000 136,000 152,000 88,000 72,000

Cash disbursements:
30% purchases - cash 45,600 26,400 21,600
70% purchases - 1 mth after 95,200 106,400 61,600
Wages 85,000 95,000 55,000
Tax 15,000
Rent 25,000 25,000 25,000
Selling and admin 32,000 34,000 26,000
Equipment 40,000 40,000 40,000
Total cash disbursements 322,800 326,800 244,200

Net cash flow 2,200 32,200 55,000

Beginning cash balance 10,000 50,000 82,200
Ending cash balance before borrowing 12,200 82,200 137,200
Minimum cash balance 50,000 50,000 50,000
Surplus/borrowing - 37,800 32,200 87,200
Ending cash balance after borrowing 50,000 82,200 137,200
(20 marks)
QUESTION 4

i) 3 approaches to working capital management

(pls refer to the notes given)
(9 marks)

ii) 2 main ways how the shareholders’ wealth can be maximized.

a) through capital appreciation which relate to the changes in the share price. Shareholders’
wealth is maximised when they can sell the shares at higher prices compare to their buying
prices.

b) through dividend declared by the firm. Shareholder may enjoy the dividend declared by the
firm.
(6 marks)