Q1. Identify the key financial decisions facing the financial manager of any business firm and Explain the meaning of each decision? (1 mark)

Q2. What can happen if a firm is poorly managed? (1 mark)

Q3. If the expected inflation rate is 10 percent and the real rate of interest is 4 percent:

Compute the nominal rate of interest. (Hint: use equation 2.1) (0.5 mark)
Briefly differentiate between the nominal and the real rates of interest. (0.5 mark)
Q4. Nimitz Rental Company provided the following information to its auditors. For the year ended March 31, 2011, the company had revenues of $878,412, general and administrative expenses of $352,666, depreciation expenses of $131,455, leasing expenses of $108,195, and interest expenses equal to $78,122.

If the company’s tax rate was 34 percent, what is its net income after taxes? (1 mark)

Q5. Modern Appliances Corporation has reported its financial results for the year ended December 31, 2011.

Modern Appliances Corporation

Income Statement for the Fiscal

31-Dec-11

Sales

5,398,412,000

Cost of goods sold

3,432,925,255

Gross profit margin

1,965,486,745

Selling, general, and admin. expenses

1,036,311,231

Depreciation

299,928,155

Operating income

629,247,359

Interest expense

35,826,000

EBT

593,421,359

Income taxes

163,104,554

Net earnings

430,316,805

Consolidated Balance Sheet

Modern Appliances Corporation

Balance Sheet as of December 31, 2011

Assets

Liabilities and Stockholders’ Equity

Cash and cash equivalents

$ 514,412,159

Short-term borrowing

$ 117,109,865

Accounts receivable

1,046,612,233

Trade accounts payable

466,937,985

Inventories

981,870,990

Other current liabilities

994,289,383

Other current assets

313,621,610

Total current assets

$2,856,516,992

Total current liabilities

$1,578,337,233

Net fixed assets

754,660,275

Long-term debt

1,200,691,565

Total liabilities

$2,779,028,798

Goodwill

118,407,710

Common stock

397,407,352

Other assets

665,058,761

Retained earnings

1,218,207,588

Total equity

1,615,614,940

Total assets

$4,394,643,738

Total liabilities and stockholders’ equity

$4,394,643,738

Using the information from the financial statements, complete a comprehensive ratio analysis for Modern Appliances Corporation.

a. Calculate these liquidity ratios: current and quick ratios. (0.2 mark)

b. Calculate these efficiency ratios: inventory turnover, total asset turnover. (0.2 mark)

d. Calculate these leverage ratios: total debt ratio, debt-to-equity ratio, Equity multiplier. (0.2 mark)

e. Calculate these profitability ratios: gross profit margin, net profit margin, ROA, ROE. (0.2 mark)

f. Use the DuPont identity, and after calculating the component ratios, compute the ROE for this firm. (0.2 mark)