Principles of Finance (FINC2202)
Higher Institute of Commerce and Management (HICM)
Semester: Second Semester
Level: 200
Year: 2012
THE UNIVERSITY OF HA.MENDA
HIGHER INSTITUTE OF COMMERCE ANO MANAGEMENT (IIICM)
COURSE: PRINCIPLES OF FINANCE
PART I: MULTIPLE CHOICE
1. Total stockholder’s equity consists of (1mark)
a) Preferred stock and common stock
b) Common stock and retained earnings
c) Common stock and capital paid-in excess of par
d) Preferred stock, common stock, capital paid-in excess of par and retained earnings’
2. Which of the following is an inflow of cash; (lmark.)
a) Funds spent in normal business operation
b) The purchase of a new factory
c) The sale of the Finn’s bonds
d) The retirement of the firm’s bonds
3. If fixed cost rises while other costs stay constant, (lmark.)
a) The breakeven point rises
b) The degree of operating leverage increases
c) Total profit declines
d) All of the above
4. Which of the following would represent a use of funds and indirectly a reduction in cash balance?
(1 mark)
a) An increase in inventory
b) A decrease in marketable securities
c) An increase in accounts payable
d) The sale of new bonds by the firm
5. Depreciation is a source of cash inflow because? (lmark.)
a) It is a tax deductible non cash expense
b) It implies-cash for future asset purchase
c) It is a tax deductible cash expense
d) It is a tax expense
6. Finance is a field of study of the relationship of three things; (lmark.)
a) Time, risk and money
b) Risk, money investment
c) Money, inflation, opportunity cost
d) Time, money, opportunity cost
7. Which of the following is viewed by company owners as an appropriate measure of wealth
a) Company value
b) Profits
c) Future of the company
d) Company image
8. If a manager is apprehensive about die economic conditions, what path will he follow? ( 1 marks)
a) He will chose to be more aggressive
b) He will follow a conservative path
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c) He will use leverage
d) None of the above
9. Ma rose sells food at the Entrance into UBa for 25FCFA a spoon. The fixed cost-for this operation is
40,000 FCFA meanwhile the variable cost per spoojoJs.20 FCFA. What is the breakeven point-in-
spoons? (2 marks)
a) 16,000 spoons
b) 8,000 spoons
c) 15,000 spoons
d) 10,000 spoons
10. What is the profit or loss on 10,000 spoons (based on question 9) (2 marks)
a) 15,000 FCFA
b) 10,000 FCFA
c) 16,000 FCFA
d) 8,000 FCFA
QUESTION 2
For December 31, 2009, the balance sheet of INSTA Corporation is as follows:
ASSETS
LIABILITIES AND STOCKHOLDERS EQUITY
Current assets
(000 FCFA)
Liabilities
| (000 FCFA)
Cash
10
Accounts payable
12
R
Accounts receivable
15
Notes payable
20
Inventory
25
Bonds payable
50
Prepaid –expenses
12
Total liabilities.
82
Total current assets
62
Stockholders’ equity
Fixed assets
Common stock
75
Plant & equipment (gross).
250
Paid-in Capital
25
Le33 accumulated depreciation
50
Retained earnings
80
Net plan & equipment
200
Total stockholders’ equity
180
Total assets;
262
Total liabilities & stockholder’s E
262
Sales for 2001 were 220 FCFA and the cost of goods sold was 60% of sales. Selling and administrative
expenses was 22 FCFA. Depreciation expense was 8% of plant and equipment (gross) at the beginning of
the year. Interest expense for the note payable was 10%, and interest expense on the bonds payable was
12%. These interest expenses are based on December 31 2000 balances. The tax rate averaged 20%. 2
FCFA in preferred stock dividends were paid and 8.4 FCFA in dividends wee, paid to common
stockholders. There were 10,000 shares of common stock outstanding.
During 2001, the cash balance and prepaid expenses balance were unchanged. Accounts receivable and
inventory increased b 10% A new machine was purchased at the end of December, 2001 at a cost of 35
FCFA. Accounts payable increased by 25%. Notes payable increased by 6 FCFA and bonds payable
decreased by 10 FCFA; both at the end of the year. The common stock- and paid-in-capital in excess of
par accounts did not change.
a) Prepare an income statement for 2001.
b) Prepare a statement of retained earnings for 2001.
c) Prepare a balance sheet as of December 31, .2001.
d) Prepare a statement of cash flow for 2001.
NB: All amounts are in thousands
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