Test 1 Fri D 2018 S2-1 - Type D PDF

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UNDERGRADUATE Class Test 1 D Semester 2, 2018 BUSINESS FINANCE I CORPFIN 1002

Writing Time: 70 minutes Instructions to Candidate: 1.

Clearly write your answer on the ANSWER SHEET with PENCIL.

2.

This is a Closed Book examination.

3.

Please allocate your time according to the percentage contribution of the questions.

5.

Examination materials must NOT be removed from the examination room.

Materials allowed in the examination: 

Calculators without storing any text.

PLEASE DO NOT COMMENCE WRITING UNTIL INSTRUCTED TO DO SO

PLEASE SEE NEXT PAGE

MULTIPLE CHOICE QUESTION (One mark for each question.) Q1 Which of the following statements best describes what an income statement is? A) B) C) D) E)

A statement of revenues and expenses at a given point in time A statement of revenues and expenses measured over the accounting period A statement of profits distributed as dividends and reinvested back into the business A statement of cash inflows and outflows that have occurred over the accounting period None of the above

Q2 Which of the following is likely to increase agency problems for a firm? A) Decrease the number of shareholders B) Agreeing to pay management bonuses in the form of shares C) Decrease share ownership of investment funds and superannuation funds D) Allowing shareholders to appoint someone else to vote on their behalf if they are not able to attend a general meeting E) None of the above

Q3 From the following table calculate the amount of tax that an individual would have to pay if their income is $85,000? Personal tax rate Taxable income $ Marginal tax rate $0 – 20,000 Nil 20,001 – 50,000 20% 50,001 - $80,000 40% 80,001 50% A) B) C) D) E)

$42,500 $34,500 $26,000 $20,500 None of the above

Q4 Calculate the amount of tax an individual would have to pay if they received a $1,100 dividend, their marginal tax rate is 37% and the tax credit is $400? A) B) C) D) E)

$407 $155 $7 $155 refund None of the above

Q5 Which of the following is a short-term solvency ratio? A) B) C) D) E)

Net working capital ROA EPS Total debt ratio None of the above

Q6 Under which of the following circumstances will owners benefit from a difference in book value and market value? A) B) C) D) E)

If market value < book value and the business is dissolved If market value > book value and shareholders trade their shares in the share market If market value < book value and shareholders trade their shares in the share market If market value > book value and the business is dissolved None of the above

Q7 If a firm has a profit margin of 30% and its net profit is $1,200 what is its total sales? A) B) C) D) E)

$3,600 $1,560 $4,100 $2,800 None of the above

Q8. If a firm has $160 in cash, $240 in accounts receivable, $500 in inventories, $4,450 in plant and equipment and has a current ratio of 1.20 times, what is its current liabilities? A) B) C) D) E)

$133.33 $4,458.33 $333.33 $750 None of the above

Q9 If a firm has $749 in net income, $360 in current liabilities, $1,950 in long-term debt, $3,400 in owner’s equity, and has $400 in current assets what is its return on assets? A) B) C) D) E)

14% 12.26% 13.12% 187.25 % None of the above

Q10 If the Total debt ratio is 0.75, the Total Debt/ Total equity is 3.0 and Total assets is $8,000, how much is Total equity? A) B) C) D) E)

$6,000 $28,000 $2,666.67 $2,000 None of the above

Q11 Which of the following accurately defines compound interest? A) B) C) D) E)

The current value of a particular amount to be received in the future Interest earned on the original principal plus interest received Interest earned on the original principal for one period or more Interest earned on amount invested in the bank None of the above

Q12 If you have budgeted for a $10,000 for a holiday which you expect to take in 4 years- time, how much money do you need to invest today if you can earn interest of 8% per year, compounded, to afford your holiday? A) B) C) D) E)

$6,800 $7,575.76 $7,350.30 $13,604.89 None of the above

Q13 What is the value in 3 years-time of $9,000 that is invested now if it earns interest of 12% per year, compounded? A) B) C) D) E)

$30,240 $12,240 $12,644.35 $9,000 None of the above

Q14 If I receive interest of 4% per year on my principal, how much money will I have accumulated in 10 years- time, if I invested $5,000 in the bank today? A) B) C) D) E)

$5,040 $2,000 $7,401.22 $7,000 None of the above

Q15 In which of the following examples do you expect conflicts of interest between management and owners to be highest? A) B) C) D) E)

A company consisting of many shareholders, each holding a small amount of shares A company consisting of few shareholders, each holding a large amount of shares A company with shares held by an investment fund A company with shares held by an investment fund and superannuation fund None of the above

Q16 Which of the following statements is consistent with the financial role of a business? A) B) C) D) E)

Staff morale is important to a business Depreciation is an allocation of cost of an asset over its expected useful life A firm must consider the distribution of profits to its shareholders A firm should promote its products by way of advertising None of the above

Q17 Which of the following statements represents a disadvantage of a partnership? A) B) C) D) E)

Partnership is dissolved when one partner dies or wishes to sell Separation of ownership and management Relatively easy to start Equity capital limited to owner’s personal wealth None of the above

Q18 Which of the following statements represents an advantage of a corporation? A) B) C) D) E)

Difficult to transfer ownership Limited liability Difficult to raise capital Taxation is at the company level and the personal level None of the above

Q19 Which of the following statements is true? A) B) C) D) E)

Partnerships have the advantage of unlimited life When a company becomes insolvent, shareholders are liable for all debts of the company Separation of ownership and management of a company can be an advantage Transfer of ownership at the corporate level is difficult None of the above

Q20 Which of the following statements offers the best means of reducing a conflict of interest between management and shareholders of a corporation? A) Offering management shares in the company as part of their remuneration package B) Organising management’s remuneration to consist of a salary only C) Reducing the amount of company information available to shareholders so that they are not overladen with too much material to read D) Government making takeover laws tighter to reduce the threat of takeovers E) None of the above

END OF EXAMINATION

RATIO ANALYSIS FORMULA (YOU CAN TEAR OFF THIS SHEET) 

NET WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES

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CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES

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QUICK RATIO (OR ACID-TEST RATIO) = (CURRENT ASSETS – INVENTORY) ÷ CURRENT LIABILITIES

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CASH RATIO= CASH/CURRENT LIABILITIES

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TOTAL DEBT RATIO= (TA – TE)/TA

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TOTAL DEBT/TOTAL EQUITY= TD/TE

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EQUITY MULTIPLIER= TA/TE

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PROFIT MARGIN = NET INCOME/SALES

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RETURN ON ASSETS (ROA) = NET INCOME / TOTAL ASSETS

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RETURN ON EQUITY (ROE) = NET INCOME / TOTAL EQUITY

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EARNINGS PER SHARE (EPS) = NET INCOME / SHARES OUTSTANDING

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PE RATIO= PRICE PER SHARE / EARNINGS PER SHARE Time Value of Money FV PV FV (with simple interest)

= PV*(1+r)t = FV/(1+r)t =PV*(1+t*r)...