Mekelle University

College of Business and Economics

Department of Marketing

Financial Management Final Exam

Name: ___________________________IDNo:
__________Dept:______Sec.___

Exam Code: 0005/04

Instruction
Dont forget to write your name, IDNo , Dept and Section on both on
question paper and answer sheet.

Using mobile and sharing calculator is strictly forbidden.

Write your exam code on answer sheet.

Show all necessary computation and steps for workout questions.

Use your time effectively and efficiently.

Time allowed 2:30hr.

GOOD LUCK!!!!
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Part I: Choose the best answer from the given
alternatives and put your answer in the space provide at
the end of the question paper.
1. Which of the following ratio comparison evaluate the financial
performance of the company over the time?

a) Cross c) Combined
sectional analysis
analysis
d) All of them
b) Time series
e) None of them
analysis

2. All of the following statement is/are/ not true

about ratio. Except

a) Financial ratio only dealt with long term

financial obligation

b) Operational ratio focuses on ability of the

firm in using its asset in relation to sales only

c) Financial ratio related to valuation of the firm

d) Market value ratio deal with worthiness of

the companys equity

e) None of the above

Base on the following information answer the

question from 3 15.

Total Asset turn Over (TATO)

................................................2x

Debit Equity Ratio (DER)

........................................................
..0.5x

Average Collection Period(ACP)....40 days

use ordinary dating method

Gross profit margin

.............................................................
..30%

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 Quick Ratio
.......................................................................
............0.75x

Inventory Turn Over (ITO)

.....................................................
.3x

Given that common stock and retained earnings is

200,000 and 300,000 respectively.

3. What is the amount of net sales?

a) 20 00 d) 1,0
0,0 0 50,
00 00
c) 45
0
b) 1,5 0,0
00, 00 e) No
ne

4. What is the amount of cost of goods sold?

a) 50 00 d) 75
0,0 0 0,0
00 00
c) 1,0
b) 1,5 50, e) No
00, 00 ne
0

5. If 25% is credit sales, what is ARTO?

a) 5x c) 3.5 e) No
x ne
b) 9x
d) 2.5
x

6. If operational day is 360 days per annum, what is

DHI?

a) 12 b) 15 c) 45
0 0 da
da da ys
ys ys
d) 76
da

2
 ys e) No
ne

7. What is the amount of cash?

a) 10, c) 20, e) No
00 83 ne
0 3

b) 25, d) 21,
00 00
0 0

8. What is the amount of account receivable?

a) 37 c) 45 e) No
5,0 0,0 ne
00 00

b) 16 d) 35
6,6 0,0
66 00

9. What is the amount of inventory?

a) 37 c) 45 e) No
5,0 0,0 ne
00 00

b) 16 d) 35
6,6 0,0
66 00

10. What is the amount of fixed asset?

a) 75 c) 50 e) No
0,0 0,0 ne
00 00

b) 25 d) 21
0,0 2,5
00 00

11. What is the amount of account

/note/payable?

a) 12 00
5,0

2
b) 25 c) 0.0
0,0 00
00
d) 75
0,0
00

e) No
ne

2
12. What is the amount of long term debt?

a) 12 b) 25 d) 75
5,0 0,0 0,0
00 00 00

c) 0.0 e) No
00 ne

13. What is the amount of total asset?

a) 25 c) 75 00
0,0 0,0 0
00 00 e) No
b) 50 d) 1,0 ne
0,0 00,
00
14. What is operating profit ratio?
a) 30 c) 20 e) No
% % ne
b) 25 d) 15
% %

15. If earning available for common stock holder

is 75,000, what is ROI and ROE respectively?

a) 37.5% & 10% d) 35% & 15%

b) 10% & 37.5% e) None

c) 15% & 35%

16. If the sales of certain company is 150,000

and its plant and equipment is expected to be
50,000. What is the FATO of the company?

a) 6x c) 2.5 e) No
x ne
b) 3x
d) 5x

17. Which of the following is different from the

other?

a) Net present c) Payback

value period

b) Profitability d) Discounted
index payback

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 period e) Internal rate
of return

18. Identify the one which is not belongs to

source of long term finance

a) Treasury bill d) Retained

earning
b) Equity
e) None of the
c) Preferred
above
share

19. Which of the following investment evaluation

criteria needs the break even of NPV?

a) Payback d) Internal rate

period of return

b) Accounting e) None of the

rate of return above

c) Profitability
index

20. If the company realizes cash inflow of birr

40,000 before tax for the next five years and the
net (average) investment for this project is
100,000 with tax rate of 50%. What is the average
rate of return?

a) 40 c) 20 e) No
% % ne

b) 80 d) 17.
% 5%

21. Based on question 20. If depreciation is birr

5000 per year, what is the accounting rate of
return?

a) 35 c) 20 e) No
% % ne

b) 17. d) 40
5% %

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 22. Which of the following investment evaluation
criteria used to rank mutually exclusive projects?

a) Average rate c) Net present

of return value

b) Profitability d) Internal rate

index of return

e) All of them

23. Consider A & B are mutually exclusive

projects. Which of the following is necessarily true?
Except

a) If target payback period is 2 years and

computed payback period for A is 1.5 years
but for B is 1.75 years. You have to select
both projects.

b) If target ARR is 10% and computed ARR is for

both project is 8%. You have to reject both
projects.

c) If targeted IRR is 15% and computed IRR for

A is 16% but for B is 13%. You have to select
project A.

d) If the NPV of both projects are positive. But

NPV of A is less than NPV of B in value. You
have select project B.

e) None of them

24. Which of the following cost of capital will not

incur flotation cost?

a) Cost of debt d) Cost of

preferred
b) Cost of
stock
equity
e) None of them
c) Cost of
retained
earnings

Based on the following information answer the questions

from 25 27. Zengena company next year expected

2
dividend is birr 7; its growth rate is 8% and the stock is
sold at birr 72 each. New stock can be sold at 64.8 per
share.

25. What is Zengenas cost of equity?

a) 27. b) 19. d) 25.

44 44 5%
% %
e) No
c) 18. ne
8%

26. What is Zengenas cost of retained earnings?

a) 27. b) 19. d) 25.

44 44 5%
% %
e) No
c) 18. ne
8%

27. What is flotation cost in percentage?

a) 10 c) 8.5 e) No
% % ne

b) 15 d) 12
% %

28. ___________measures the relationship

between EBIT and earnings per share

a) DO c) DF e) b
L L &
d
b) DT d) DC
L L f) No
ne

29. I f DTL is 3 and EPS is increased by 600%,

what is the percentage change in sales?

a) 10 c) 50 e) 30
0% % 0%

b) 20 d) 60 f) No
0% 0% ne

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 30. Which of the following is true about
leverage?

a) It uses fixed cost to boost EBIT/EPS/

b) The change in sales leads to greater change

in EBIT there will be operating leverage

c) The change in EBIT leads to similar change in

EPS there will be financial leverage.

d) If the change in sales and EPS is equal there

will be total leverage

e) All are true except C & D

Part II: Work out Questions put your

answer only on the space provided.
1. Based on the following information, answer the
questions followed it.

Year 0 1 2 3 4 5
Cash (50,00 25,00 30,00 45,00 (10,00 20,00
flow 0) 0 0 0 0) 0
Calculate
a) Payback Period(PP):_______________

b) Net Present Value (NPV) @ 10% cost of capital:

____________

c) Discounted Payback Period (DPP) @ 10%

discount rate: ___________

2. XYZ Soft Drink Company sells 500,000 bottles of

soft drinks a year. Each bottle produced has a
variable cost of birr 1.5 and sells for 2.5.Fixed
operating costs are birr 50,000.The company has
current interest charges of birr 6,000 and preferred
dividends of birr 2,400. The corporate tax rate is
40%.

Calculate
a) DOL: ____________

b) DFL: ____________

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 c) DTL: ___________

3. Write the topic of your group assignment:

___________________________________________________
______________________________

Bonus Questions
1. Armon Brothers, Inc., is attempting to evaluate the
costs of internal and external common equity. The
companys stock is currently selling for $62.50 per
share. The company expects to pay $5.42 per
share at the end of the year. The dividends for the
past 5 years are given below:
Year Dividend
19x5 $5.17
19x4 $4.92
19x3 $4.68
19x2 $4.46
19x1 $4.25
Name: _________________________________IDNo:
___________Dept:__________ Sec.: _________
The company expects to net $57.50 per share on a new
share after
Examflotation costs. Calculate:
Code: _____________
a) The growth rate of dividends; ___________
Partflotation
b) The I: Multiple
cost choices
(in percent): ___________
c) The cost of retained earnings: ___________
______2. _______3._______4. _______5. _______6. ______7._______8. ________
d) The cost of new common stock: __________
2. Ewald Companys
9. ______10. ______11. current stock
______12. price ______14.
______13. is $36, and
_____15. _____16.
its
________last dividend was $2.40. In view of Ewalds
strong financial position and its consequent low
17.risk, its required
_____18. rate
______19. of return______21.
______20. is only 12 percent._____23.
______22. If _____24.
dividends are expected to grow at a constant rate,
________
g, in the future, and if ks is expected to remain at
12 percent, what is Ewalds expected stock price 5
25. _____26. ______27. ______28. ______29. ______30. ______
years from now?
Ans:__________________
Part II: Workout Questions

a):____________b): ____________c): _____________

a): ____________b): ___________c): _____________

Bonus Questions

a): ___________b): ___________c): _____________d): _____________

Ans: ________________

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Exam Date: Accounts 50% of
26/06/13 the total mark