Principles of Finance (FINC2202)
Higher Institute of Commerce and Management (HICM)
Semester: Resit
Level: 200
Year: 2017
Instructions to Candidates: Answer all questions.
QUESTION 1 (30 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.
NB: All amounts are in thousands
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: Resit LEVEL: 100
LECTURER: ARMSTRONG-PEACE NF DATE: 2016/2017 HALL: DURATION: 3 hours
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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 (20 marks)
The financial statement of GRAND STANDARD Ltd presents the following information;
Sales (all on credit) 10,000,000FCFA in the year 2015.
• Sales to all total assets 2 times
• Total debt to asset 30%
• Current ratio 3 times
• Inventory turn over 5 times
• Average collection period 18 days
• Fixed assets turnover 5 times
Work Required: Using the information above, fill in the balance sheet below;
Current debt
Accounts receivable Long term debt
Inventory Total debt
Total current assets Equity
Fixed assets
Total assets Total debt + equity
QUESTION 3 (15 marks)
ESOLA sells food at the Bamenda Main Market for 15FCFA a spoon. The fixed costs for this
operation are 80,000FCFA, given the variable cost per spoon is 10FCFA.
(a) What is the break-even point in spoons? (2 marks)
(b) Calculate the profit or loss on 15,000 spoons and on 30,000 spoons. (4 marks)
(c) What is the degree of operating leverage at 20,000 spoons and at 30,000 spoons? Why does
the degree of operating leverage change as the quantity sold increases? (4 marks)
(d) If ESOLA has an annual interest expense of 10,000FCFA, calculate the degree of financial
leverage at both 20,000 and 30,000 spoons. (3 marks)
(e) What is the degree of combined leverage at both sales levels? (2 marks)
It is your attitude, not your aptitude that determines your altitude.
BE WISE, GOOD LUCK!!!
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