Harambe University Worksheet for Financial Management-I

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HARAMBE UNIVERSITY
DISTANCE AND CONTINUING EDUCATION PROGRAM

WORKSHEET FOR FINANCIAL MANAGEMENT-I (ACCT )

This is a test paper you are expected to do by yourself. It has the weights of 25 points.
The test paper should be completed and mailed to the College for evaluation. Do not try
to complete the worksheet without covering all the lessons and exercises in the course
material.
Any questions in the course that is vague for you to understand should be stated on a
separate sheet of paper and attached to this worksheet. Your tutor will clarify them for
you.

After completing this test paper, be certain to write your Name, Identification Number
(Id. No) and Address on the first page, your Name and Identification Number on the
other pages only.

PART-I SAY TRUE IF THE STATEMENT IS CORRECT, FALSE IF THE STATEMENT IS

INCORRECT
1. Payback period ignores the cash flows within the computed payback period though
they are important for acceptance or rejection decisions.
2. The net present value method is the difference between the present values of future cash
inflows and the present value of cash outflows, discounted at the given cost of capital.
3. Present value is the amount of money that should be invested today at a given
interest rate over a specified period.
4. The money market is a financial market in which both short-term and long term
debt instruments are traded.
5. Financial management is concerned with the creation, maintenance and
maximization of economic value or wealth through the application accounting
theories and concepts.
PART-II MATCHING
“A” “B”
1. Profitability ratio A. Degree of efficiency
2. Activity ratio B. Debt management
3. Capital Intensity C. Internal Rate of Return
4. Capital Markets D. Commercial paper
5. DCF method E. Financial Planning

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Harambe University College Worksheet for Financial Management-I

F. Bonds
G. Amount of assets required to support sales
H. Return on Investment

PART-II CHOOSE THE BEST ANSWER FROM THE GIVEN ALTERNATIVES

1. A systematic approach to capital budgeting requires the following procedures to
follow. Except;
A. The controlling of expenditures and the careful monitoring of project
implementation
B. The estimation and forecasting of current cash-flows only
C. The creative search and identification of new investment opportunities.
D. The formulation of long-term strategy and goals
2. If Mr. X invested 10,000 birr and earned 13,000 birr at the end of the fifth years, what will be
the rate of simple interest used on such type of investment?
A. 3 percent C. 60 percent
B. 0.6 percent D. None of the above
3. ____________________ is the ratio of the present value of the expected cash inflow of
the project and the present value of cash outflow.
A. Internal rate of return C. Accounting rate of return
B. Cross over rate D. None of the above
4. Which of the following statement is wrong about the current ratio of a company?
A. Current ratio indicates the amount of current asset safeguarding a monetary unit
of current liability.
B. A relatively high current ratio as compared with the industry average indicates a
relative higher ability of the firm to pay its current liabilities.
C. The higher the current ratio of company indicates the better the liquidity position
of that company.
D. None of the above
5. You would like to buy a new automobile. You have $50,000 or so, but the car costs
$68,500. If you can earn 9 percent, how much do you have to invest today to buy the
car in two years? Assume the price will stay the same.
A. $ 57,655.08 C. $ 68,500.00
B. $ 50,000.00 D. None of the above
6. You estimate that you will have about $ 150,494 to send your child to college after
eight years. If you can earn 20 percent per year, at what amount of today’s
investment will you just reach your goal?
A. $ 80,000 C. $35,000
B. $ 20,000 D. $ 100,000
7. After carefully going over your budget, you have determined you can afford to pay
$632 per month towards a new sports car. You call up your local bank and find out
that the going rate is 1 percent per month for 48 months. How much can you
borrow?
A. $ 35,000 B. $ 24,000
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Harambe University College Worksheet for Financial Management-I

C. $ 20,000 D. None of the above

8. Which one of the following ratios depicts the adequacy of profit relative to size of a firm?
A. Debtor turnover ratio. C. Acid test ratio.
B. Fixed asset turnover ratio. D. Total asset turnover ratio.
E. None
9. This financial statement analysis approach enables you to evaluate company’s financial
conditions at a given point in time and compare company’s current performance against that
of the previous year is called:
A. Trend Analysis C. Time series analysis
B. Industry analysis D. Cross-sectional analysis
E. None
10. The financial management function that deal with determining the best financing mix or
capital structure of the firm is called:
A. Investing decision C. Portfolio management.
B. Financing decision D. Ratio analysis.
E. None of the above
PART-IV DISCUSSION AND WORKOUT QUESTIONS
1. What are the two methods to determine additional financial requirements or fund
needed in the firm? Briefly explain.
2. Suppose you locate a two-year investment that pays 14 percent per year. If you
invest $325, how much will you have at the end of the two years? How much of this
is simple interest? How much is compound interest?
3. Projects SS and LL have the following cash flows:
END-OF-YEAR CASH FLOWS
0 1 2 3 Cost of Capital = 10%
SS - $700 $500 $300 $100
LL - $700 $100 $300 $600
 If a 10% cost of capital is appropriate for both projects:
a) What are their NPVs?
b) Which project(s) would you accept if SS and LL were (i) independent? (ii) Mutually
exclusive?
4. You must analyze two projects, X and Y. Each project costs $10,000, and the firm’s WACC
is 12%. The expected net cash flows are as follows:
0 1 2 3 4_____
Project X - $10,000 $6,500 $3,000 $3,000 $1,000
Project Y - $10,000 $3,500 $3,500 $3,500 $3,500
a. Calculate each project’s NPV, IRR, payback, and discounted payback.
b. Which project(s) should be accepted if they are independent?
c. Which project(s) should be accepted if they are mutually exclusive?
5. Ratio Analysis
Figure 1: Income statement for Pepsi Cola incorporation for the year ended, 1998

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Harambe University College Worksheet for Financial Management-I

Figure 2: Balance sheet for Pepsi Cola incorporation for the year 1997 and 1998

Required:
 Based on the given data from the above figure find out the following only for the
year 1998:
a) Current ratio
b) Quick ratio
c) Debt-equity ratio
d) Total debt ratio
e) Times interest earned ratio
f) Asset turnover ratio
g) Inventory turnover ratio
h) Net profit margin ratio
i) Return on Asset (RoA)

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Harambe University College Worksheet for Financial Management-I

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