Principles of Finance (FINC2202)
Higher Institute of Commerce and Management (HICM)
Semester: Second Semester
Level: 200
Year: 2017
Instructions to Candidates: Answer all questions.
QUESTION 1 (27 marks)
For December 31, 2015, the balance sheet of NEW BAMENDA CORPORATION (NBC) is as
follows:
ASSETS LIABILITIES AND STOCKHOLDERS
EQUITY
CURRENT ASSETS LIABILITIES
Cash 10 Accounts payable 12
Accounts receivable 15 Notes payable 20
Inventory 25 Bonds payable 50
Prepaid expenses 12 Total liabilities 82
Total current assets 62 Stockholder's equity
Fixed assets Common stock 75
Plant ans equipment 250 Paid-in capital 25
Accumulated depreciation 50 Retained earnings 80
Net plan and equipment 200 Total Stockholder's equity 180
Total Assets 262 Total liabilities and Stockholder's E 262
Sales for 2016 were 220FCFA and the cost of goods sold was 60% of sales. Selling and
administrative expenses was 22FCFA. Depreciation expense was 8% of plant and equipment (gross)
at the beginning of the year. Interest expense for the notes payable was 10%, and interest expense
on the bonds payable was 12%. These interest expenses are based on December 31, 2015 balances.
The tax rate averaged 20%. 2FCFA in preferred stock dividends were paid and 8.4FCFA on
dividends were paid to common stockholders. There were 10,000 shares of common stock
outstanding.
During 2016, the cash balance and prepaid expenses balance were unchanged. Accounts receivable
and inventory increased by 10%. A new machine was purchased at the end of December, 2016 at a
cost of 35FCFA. Accounts payable increased by 25%. Notes payable increased by 6FCFA and
bonds payable decreased by 10FCFA, both at the end of the year. The common stock and paid-in-
capital in excess of par accounts did not change.
REPUBLIC OF CAMEROON
Peace -Work – Fatherland
UNIVERSITY OF BAMENDA
P.O BOX 39 BAMENDA
TEL: 33 36 36 94
REPUBLIQUE DU CAMEROUN
Paix -Travail – Patrie
UNIVERSITE DE BAMENDA
P.O BOX 39 BAMENDA
TEL: 33 36 36 94
SCHOOL/FACULTY: H.I.C.M DEPARTMENT: ACCOUNTING AND FINANCE
COURSE CODE: COURSE TITLE: PRINCIPLES OF FINANCE
SEMESTER: Second NATURE: Exam LEVEL: 100
LECTURER: ARMSTRONG-PEACE NF DATE: 2016/2017 HALL: DURATION: 3 hours
www.schoolfaqs.net
NB: All amounts are in thousands
Work required:
(a) Prepare an income statement for 2016 (6 marks)
(b) Prepare a statement of retained earnings for 2016 (2 marks)
(c) Prepare a balance sheet as of December 31, 2016 (6 marks)
(d) Compute the ratios below and interpret them. Also compare with the industrial averages
provided. (13 marks)
Ratio Profit
margin
Return
on asset
Return
on
equity
Receiva
ble TO
Average
collectio
n period
Inventor
y TO
Fixed
asset TO
Total
asset TO
Current
ratio
6.70% 10.00% 15.00% 10 times 36 days 7 times 5.4
times
1.5
times
2.1
Ratio Quick Ratio Debt-to-total asset Time interest earned
1 33.00% 7 times
QUESTION 2 (10 marks)
Cameroon-Emergency Int. Ltd's projected income statement is as follows; for year 1, sales
amounted to 45,000FCFA, Total cost 19,800FCFA, variable cost 1,800FCFA, interest expenses
amounted to 1,200FCFA.
For year 2, sales Increase by 4,500FCFA, total cost increased by 225FCFA, while fixed cost stood
at 18,000FCFA, Interest expenses did not change. The tax rate for the time period stood at 15%.
Work Required: Prepare the income statement, Calculate the DOL, the DFL and the DCL (10
marks)
QUESTION 3 (33 marks)
BAMENDA Development Extended Star (BADEST) produces and sells two main products. Coffee
and palm nuts with the following projected unit sales and unit price.
Elements Coffee Palm nuts
Quantity 10000 20000
Sales Price 30 FCFA 35 FCFA
Stock of beginning inventory January 1
st
2016
Elements Coffee Palm nuts
Quantity 850 1800
Cost per unit 16 FCFA 20 FCFA
The desired ending inventory of BADEST represents 10% of unit sales for the time period.
The total cost per unit to produce the required items for the 6 month period is presented on the table
below;
Elements Coffee (FCFA) Palm nuts (FCFA)
Materials 9 12
Labour 6 7
Overhead 4 5
www.schoolfaqs.net
It should be noted that BADEST uses FIFO accounting, general and administrative expenses are
120,000FCFA, interest expenses 15,000FCFA, taxes equals 20% and common dividends of
15,000FCFA.
Anticipated sales (in FCFA) of BADEST can be divided into monthly projections as follows;
January February March April May June
200000 100000 150000 150000 250000 150000
A careful examination of past sales and collections indicates that 30% of sales are collected in the
month of sales and 70% in the following month. Sales of December of the previous year were
137,143FCFA. The assumptions made in construction of the cash payment schedule are the
following;
• All cost of materials, labour and overhead are incurred on an equal basis over the six month
period.
• Payments of materials are made one month after the purchase; labour and overhead
represent direct monthly cash outlay as is true for interest, taxes and dividends
• New equipment are purchased in February (80,000FCFA) and June (100,000FCFA),
Interests are paid in June.
• Taxes are paid in two equal instalments in March and June; and cash dividends of
15,000FCFA are paid in June.
BADEST wishes to have a minimum cash balance of 50,000FCFA all times. If it goes below, the
firm will have to burrow funds from a bank. If it goes above 50,000FCFA and the firm has an
outstanding loan, it will use the excess funds to reduce the loan. It is also assumed that the firm has
a beginning cash balance of 50,000FCFA on January 1
st
2016.
The prior balance sheet of BADEST as of December 31, 2015 is as follows;
ASSETS LIABILITIES AND STOCKHOLDERS
EQUITY
Cash 50000 Accounts payable 45000
Marketable securities 32000 Notes payable 0
Accounts receivable 96000 Long term debt 150000
Inventory 49600 Common stock 105000
Total Current Assets 227600 Retained earnings 205000
Plant and Equipment 227400
Total Assets 505000 Total Liabilities/stockholders equity 505000
BADEST is asked by its bank to provide proforma statements for midyear 2016, which will be used
to analyze their loan file for an amount of 20,000,000FCFA.
You have been invited as an expert in Financial Management by BADEST and your duty is to
provide the required proforma statements for a handsome reward and a possible position as
consultant to the Board of Directors of BADEST depending on the outcome of the loan request;
➢ Proforma income statement (6 points)
➢ A schedule of cash receipts, cash payments and the actual cash budget (20 marks)
➢ Proforma balance sheet (7 marks)
It is your attitude, not your aptitude that determines your altitude.
BE WISE, GOOD LUCK!!!
www.schoolfaqs.net
