The Islamic University – Gaza
Faculty of Commerce
Department of Accounting
Financial Management
Final Exam – Second Semester 2011/2012 /

Please read the following instructions before answering the questions:

(a)Time Allowed for this exam: Two hours

(b)Marks will be granted for neatness and good presentation.

(c)Marks will be deducted for grammatical and spelling mistakes.

(d)Use the provided answer book.

(e)The use of pencil for writing is not permitted.

(f)Do not insert any Arabic words in the answer book.

(g)Insert your name and student No. below.

Student Name……………………………………………………

Student No………………………………………………………

Ramadan Al-Omari, FCCA

28 May,2012

Question 1: (20 marks)

Choose the correct answer:

1. Annuities are

  1. Equally-sized cash flows received during the lifetime of a project.
  2. Different amount received at various intervals.
  3. Dividends received annually.
  4. Equally-spaced cash flows of equal size.

2. The liquidity of a firm is measured by the

  1. Volume of its annual earnings.
  2. Difference between its total assets and total liabilities.
  3. Amount of the earnings per share.
  4. Ability to satisfy its short-term financial obligations.

3. All groups of individuals who have a direct economic link to a firm are called

  1. Stakeholders.
  2. Stockholders.
  3. Board of Directors.
  4. Employees.

4. The nominal interest rate is the

  1. Actual rate charged by the providers of funds.
  2. Interest rate charged in a perfect world.
  3. Interest on the T-bills.
  4. Rate that achieves the equilibrium between supply and demand for funds.

5. A bond’s current yield is equal to the

  1. Interest on a 90-day Treasury bill.
  2. Annual interest divided by the current price of the security.
  3. Annual interest divided by the par value of the security.
  4. Principal multiplied by the market interest rate.

6. Business risk is the chance

  1. That a firm will not be able to meet its financial obligations.
  2. That a firm will not be able to pay its operating costs.
  3. Of making a trading loss.
  4. Ofbankruptcy.

7. The real rate of interest is the

  1. Actual rate of interest charged by lenders of funds.
  2. Rate of interest charged by the providers of funds in a perfect world.
  3. Nominal rate charged to borrowers of funds in an imperfect world.
  4. Interest rate determined by the central banks.

8. Combining un-correlated assets

  1. Can increase risk.
  2. Produces an inefficient portfolio.
  3. Has no effect on risk.
  4. Can reduce risk.

9. In the context of business and finance, riskis defined as the

a.Certainty of losing money.

b.Chance of suffering a financial loss.

c.Possibility of hiring efficient staff.

d.Possibility of closing abranch.

10. Borrowers are willing to pay a higher rate of interest for long-term funds because

  1. Long term debt is not allowed by governments.
  2. Borrowing money for long periods is not a common practice.
  3. Banks prefer short term debt.
  4. Such a rate could be locked in for a longer period of time.

11. The risk-free rate of interest compensates investors for the

  1. Real rateof return andthe expected rate of inflation.
  2. Risk involved in investing in bonds.
  3. Risk involved in investing in equity.
  4. Nominal interest rate.

12. A firm can have a net loss and still have positive cash flow from operations when

  1. The firm decides to pay dividends to its stockholders.
  2. Non-cash charges are less than the net loss.
  3. Depreciation and other non-cash charges are greater than the net loss.
  4. The net loss is equal to the non-cash charges.

13. An investor who is willing to invest in a high risk investment, is considered as

  1. Risk-averse
  2. Risk-seeking.
  3. Risk-indifferent
  4. Knowledgeable investor.

14. The bond’s maturity date is the date on which the

  1. Principal must be repaid.
  2. Bond is sold in the stock exchange.
  3. Bond is issued.
  4. Annual interest is paid on the bond.

15. The bond’s yield-to-maturity is equal to the

  1. Total annual interest earned for the period between its issue and its maturity.
  2. Yield expressed as a compound rate of return earned on a bond from the time it is acquired until the maturity date of the bond.
  3. Bank interest rate for the duration of the bond.
  4. Total risk free interest prevailing during the life time of the bond.

16. A bond’s coupon rate is the

  1. Current yield of the bond.
  2. Excess of the bond’s market value over its par value.
  3. Specified interest rate that must be periodically paid.
  4. Market value of the bond.

17. The bond’s principal isthe

  1. Amount paid by the bond holder to acquire the bond in the stock exchange.
  2. Periodic interest amount paid by the corporation to the bond holder.
  3. Market value of the bond.
  4. Amount borrowed by the company and the amount owed to the bond holder on the maturity date.

18. Corporate Governance is the

  1. Accounting standards that govern the preparation of the financial statements.
  2. Rules and regulations that govern the actions of the company.
  3. System used to direct and control a corporation.
  4. Ratio analysis.

19. To adjust the income statement to show cash flows from operations

  1. Non-cash chargesshould be added back to net profit after taxes.
  2. Dividends paid to shareholders should be added back to net profit.
  3. Amounts paid to suppliers should be added back to net profit after taxes.
  4. Amounts received from customers should be added back to net profit.

20. Investors will hold portfolios because

  1. Investors are risk seekers.
  2. Portfolios are easy to trade.
  3. Portfolios are easy to constitute.
  4. They will diversifyaway a portion of the risk.

Question 2: (15 marks)

The following information and financial ratios relate to Barcelona Inc, a European firm, for the year 2011. (The figures are stated in Euros)

Sales693,500Net profit margin8%

Average Inventory 27,740Return on total assets16%

Total liabilities104,025Return on Common equity20%

Gross profit margin 80%Total assets turnover 2

Operating profit margin 35%Average collection period 30 days

You are required to calculate the following:

  1. Gross profitf. Total assets
  2. Cost of goods soldg. Debt ratio
  3. Inventory turnoverh. Accounts Receivable
  4. Operating profiti. Operating expenses
  5. Total common stock equity j. Earnings available to common stockholders

Question 3: (10 marks)

Give brief explanations for the following:

  1. Outstanding shares
  2. Authorized shares
  3. Cumulative Preferred stock
  4. Stockholders’ preemptive right
  5. Perfect world
  6. A trustee
  7. Convertible bonds
  8. A bond’s call feature
  9. A Eurobond
  10. A foreign bond

Question 4: (15 marks)

The actual sales and purchases for Real Madrid Inc for the months February and March 2012, along with its forecast sales and purchases for the period April to June 2012 are given below: (all figures are in US$)

MonthSalesPurchases

February210,000 60,000

March250,000100,000

April170,000120,000

May160,000100,000

June140,000 80,000

You are also given the following additional information:

  1. The firm makes 20% of all sales for cash and collects 40% of its sales in each of the two months following the sale.
  2. Other cash inflows are expected at $12,000 in April, $15,000 in May, $27,000 inJune.
  3. The firm pays 10% cash for purchases, 50% in the following month, and 40% two months later.
  4. Wages and Salaries amount to 20% of the preceding month’s sales.
  5. Rent of $10,000 must be paid monthly.
  6. Interest payments of $ 3,000 and $ 5,000 are due in March and June respectively.
  7. The firm expects to pay cash dividends of $15,000 in April.
  8. Taxes of $40,000 are due in June.
  9. The firm also intends to make a $20,000 cash purchase of fixed assets in May.
  10. The cash balance at the beginning of April was $12,000.
  11. The firm wishes to maintain a minimum cash balance of $15,000 monthly.

You are required to prepare the cash budget for the months April to June 2012.

G OO D L U C K

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