Rift Valley University
Department Of Accounting and Finance
Assignment (Group Work) From 30%
1. Complete the balance sheet and sales information in the table that follows for Horaa Industries
using the following financial data( From chapter 2)
Debt ratio: 50%
Quick ratio: 0.80
Total assets turnover: 1.5
Day’s sales outstanding (DSO): 36.5 days
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25%
Inventory turnover ratio: 5
Note: DSO calculated based on a 365-day year.
Balance Sheet
Cash _________ Accounts payable _______
Accounts receivable _________ Long-term debt 60,000
Inventories _________ Common stock _______
Fixed assets _________ Retained earnings 97,500
Total assets Br 300,000 Total liabilities and equity ______
Sales _________ Cost of goods sold _______
2. The ABC Company had a quick ratio of 1.4, a current ratio of 3.0, an inventory turnover of 6
times, total current assets of Br 810,000, and cash and marketable securities of Br 120,000.
Required: What were ABC’s annual sales and it’s DSO? Assume a 365-day year. ( From chapter 2)
3. KKB Company: Balance Sheet as of December 31, 2007 (In Thousands)
Cash Br 77,500 Accounts payable Br 129,000
Receivables 336,000 Notes payable 84,000
Inventories 241,500 Other current liabilities 117,000
Total current assets Br 655,000 Total current liabilities Br 330,000
Net fixed assets 292,500 Long-term debt 256,500
Common equity 361,000
Total assets Br 947,500 Total liabilities and equity Br 947,500
KKB Company: Income Statement for Year Ended December 31, 2007
Sales Br 1,607,500
Cost of goods sold (1,392,500)
Selling, general, and administrative expenses ( 145,000)
Earnings before interest and taxes (EBIT) Br 70,000
Interest expense (24,500)
Earnings before taxes (EBT) Br 45,500
Federal and state income taxes (40%) ( 18,200)
Net income Br 27,300
Based on the above information calculate and complete the following black space ( From chapter 2)
KKB Ratio
Current assets/current liabilities =___________
Days sales outstanding = ___________
Sales/inventory =____________
Sales/fixed assets =____________
Sales/total assets =____________
Net income/sales =____________
Net income/total assets =____________
Net income/common equity =___________
Total debt/total assets =__________
Note: DSO Calculation is based on a 365-day year.
4. How much must one deposit now to be able to withdraw Br 2,000 per year at the end of
each of the next 5 years if the interest rate is 10%?
Required: Calculate present value of annuity ( From chapter 3)
5. X Company owes Br. 40,000 to Y Co. at the end of 10 years. Y Co. could earn 10% on its
money.
Required: How much should Y Co. accept from X Company as of today? ( From chapter 3)
6. You need to accumulate Br. 300,000 to acquire a car. To do so, you plan to make equal
monthly deposits for 5 years. The first payment is made a month from today, in a bank
account which pays 10 percent interest, compounded monthly.
Required: How much should you deposit every month to reach your goal? ( From chapter 3)
7. A company issues 10,000 equity shares of Br. 100 each at a premium of 10%. The company
has been paying 25% dividend to equity shareholders for the past five years and expects to
maintain the same in the future also. Compute the cost of equity capital. ( From chapter 4)
Required: Will it make any difference if the market price of equity share is Br. 175?
8. A company plans to issue 10,000 new shares of Br. 100 each at a par. The floatation costs are
expected to be 4% of the share price. The company pays a dividend of Br. 12 per share
initially and growth in dividends is expected to be 5%.
Required: Compute the cost of new issue of equity shares. ( From chapter 4)
9. A company issues Br. 2,000,000, 10% redeemable debentures at a discount of 5%. The costs
of floatation amount to Br. 50,000. The debentures are redeemable after 8 years. Calculate
before tax and after tax. Cost of debt assuring a tax rate of 55%. ( From chapter 4)
10. A company has on its books the following amounts and specific costs of each type of capital.
Source of Funds Book Value in Birr Market Value in Specific
Birr Costs %
Debt 400,000 380,000 5
Preference Shares 100,000 110,000 8
Equity Shares 600,000 900,000 15
Retained Earnings 200,000 300,000 13
Total 1,300,000 1,690,000
Required: Determine the weighted average cost of capital using: ( From chapter 4)
a) Book value weights, and
b) Market value weights.
c) How are they different? Can you think of a situation where the weighted average cost of
capital would be the same using either of the weights?
11. ABC Co. has Br 120, 000 on hand. This amount is invested in a project, where the annual
benefits after taxes are as below. It would like to know the rate of return earned by the company
at the end of the life of the project. ( From chapter 5)
Year Cash Flows
1 Br 50, 000
2 40, 000
3 45, 000
4 30, 000
5 40, 000
Required:
a) Compute IRR?
b) Compute NPV?
c) Compute PI?