FIN 101 – PRINCIPLES OF FINANCE ASSIGNMENT 1

FIN 101 – PRINCIPLES OF FINANCE ASSIGNMENT 1

Subject: Business    / Finance
Question
PRINCIPLES OF FINANCE – FIN-101
ASSIGNMENT- 1
Last Date for Submission 25th March 2017
Total Marks: 15
Each Question carries three marks each.
1. Case Study:
You own a cement company, and deal with most the local contractors for cement, sand, etc.
You have a reputation of high quality products, and for good customer service with your
customers. Your foreman has just run the standard quality control tests you have performed
regularly on your products.
When the test results are ready, you discover that the new batch of product is 9% less durable
than your usual material. It is still well above all industry standards and meets all building
codes and requirements for the purposes for which it is intended, but it is, nevertheless, not
up to your usual standards. Throwing it away would cost your company many thousands of
dollars.
You decide to sell the cement anyway and increase the net sale and earn more profit.
Support your answer with logic and reasons.
Answer may vary from student to students.
Questions:
1-Should you tell your customers about the cement and quality?

2-Should you discount the price to increase more sale and earn more profit? Is it ethical
profitable business?

3-Would you use this cement on foundations for your own house? 2. Given below are comparative balance sheets and an income statement for the Copper
Corporation:
Copper Corporation
Balance Sheets – Current Year
Dec. 31
Jan. 1
Cash
$ 31,600
$ 26,900
Accounts receivable
252,000
216,000
Inventory
173,000
178,000
Equipment (net)
129,000
152,000
$572,900
$585,600
Accounts payable $135,000 $147,000 Dividends payable 18,000 14,000 Share capital, $9 par 90,000
342,600
$585,600 90,000
321,900
$572,900 Retained earnings Copper Corporation
Income Statement for the
Current Year
Sales
Cost of goods sold
Gross profit on sales
Operating expenses
Operating income
Interest expense and
income taxes
Profit $936,000
(515,000)
$421,000
(332,000)
$ 89,000
(39,000)
$ 50.000 All sales were made on account. Cash dividends declared during the year totaled $29,300.
Compute and interpret the following:
a Average accounts receivable turnover b Book value per share at the end of the current year c Earnings per share d Return on assets e Return on ordinary shareholders’ equity 3. Saudi Electricity Company management has just completed an assessment of the company’s
assets and liabilities as on 31-12-2016 and has obtained the following information.
a) 1-The firm has total current assets worth $625,000 at book value and $519,000 at market
value.
b) Its long-term assets include plant and equipment valued at market for $695,000, While
their book value is $940,000. c) The Company’s total current liabilities are valued at market for $543,000, while their
book value is $495,000. Both the book value and the market value of long-term debt is
$350,000.
d) If the company’s total assets are equal to a market value of $1,214,000 (book value of
$1,565,000),
From the above information:
What are the book value and market value of its stockholders’ equity?

4. Critical thinking
Your friend, Khaled, believes that since capital markets are efficient, he doesn’t need to read the
financial press or be involved in stock research before purchasing stocks for his portfolio. He
simply throws darts at the stock pages and buys the stocks the darts hit. Is stock research and
analysis important when buying and selling stocks in an efficient market?

5. Give an example of how a conflict of interest may arise between Bondholders and
Stockholders?