Answer ALL the questions in both sections

Section A (20 questions = 20 marks)

1. The concept of compounding interest illustrates that ________.

o A) future investments are less valuable than present investments

o B) money invested today grows over time due to interest accumulation

o C) financial gains are certain only if interest rates are constant

o D) firms invest only to avoid immediate cash outflows

2. If a company’s risk decreases, assuming all other factors remain constant, the
likely impact on its stock price is ________.

o A) a decrease in stock price

o B) an increase in stock price

o C) no change in stock price

o D) an unpredictable effect

3. A drawback of managing a firm for shareholders instead of broader

stakeholders is ________.

o A) lack of flexibility in satisfying diverse interests

o B) shareholders' focus on non-financial outcomes

o C) prioritization of long-term gains over immediate returns

o D) the difficulty of identifying a single stakeholder group

4. Financial management primarily focuses on ________.

o A) verifying business transactions

o B) making strategic investment decisions

o C) identifying competitive suppliers

o D) planning for operational activities

5. ________ invest pooled funds on behalf of investors, often undertaking risky

ventures that individuals might avoid alone.

o A) Financial analysts

o B) Investment managers
 o C) Auditors

o D) Regulatory agencies

6. The portion of profit allocated per share to common shareholders is known as

________.

o A) net income per share

o B) dividend payout

o C) earnings per share

o D) asset yield per share

7. The ultimate goal of a financial manager should be ________.

o A) maximizing stakeholder satisfaction

o B) ensuring minimal risk exposure

o C) maximizing shareholder wealth

o D) achieving the lowest possible cost

8. Among the following, who is considered a stakeholder in a company?

o A) industry regulators

o B) federal agencies

o C) suppliers

o D) competing businesses

9. Which of the following accurately describes a secondary market?

o A) It is where unlisted securities are initially issued.

o B) It involves direct transactions between the issuer and investor.

o C) It facilitates trading of previously issued securities.

o D) It is regulated exclusively by local government agencies.

10. Key securities in the money markets are ________.

o A) stocks and bonds

o B) Treasury bills and commercial paper

o C) savings bonds and mutual funds

o D) municipal bonds and equities

11. Money market transactions typically involve ________.

o A) mutual fund shares

o B) high-grade marketable securities

o C) corporate bonds

o D) stocks

12. Firm XYZ recorded operating profits of $120,000, taxes of $20,000, and
interest expenses of $25,000. Calculate XYZ’s net profit after taxes.

o A) $75,000

o B) $95,000

o C) $85,000

o D) $115,000

13. Benchmarking in financial analysis involves ________.

o A) comparing a firm’s performance with that of industry leaders

o B) forecasting financial growth based on current trends

o C) evaluating performance metrics against historical data

o D) setting targets based on governmental policies

14. Which two ratios primarily measure a firm’s liquidity?

o A) return on equity and gross margin

o B) current ratio and quick ratio

o C) inventory turnover and total asset turnover

o D) debt-to-equity and working capital ratio

15. The present value of a $30,000 perpetuity at a 10 percent discount rate is

________.

o A) $300,000

o B) $270,000

o C) $350,000

o D) $300,000
16. An account balance is $2,000 today, $3,000 in one year, and $4,000 in two
years. If these amounts are deposited in an account earning 10%, what will
the balance be three years from now?

o A) $10,500

o B) $9,900

o C) $11,300

o D) $8,400

17. Mia wants to save $20,000 for a special event in four years. What annual
deposit is needed if she invests in an account earning 8%?

o A) $4,205

o B) $4,615

o C) $5,000

o D) $3,720

18. Jon borrows $6,000 at an 8% annual interest rate, compounded yearly, to be

repaid in equal installments over four years. What is the interest payment for
the third year?

o A) $300

o B) $240

o C) $480

o D) $410

19. A/An ________ is a stream of fixed payments at regular intervals, starting at

the end of each period.

o A) ordinary annuity

o B) perpetuity

o C) annuity due

o D) discount bond

20. Over 30 years, an investor deposits $2,000 annually into an account earning
7%. What will be the account balance at the end of this period?

o A) $60,000

o B) $180,000
 o C) $210,600

o D) $265,022

Section B (80 marks)

1. Using the balance sheet below, calculate the following ratios:

XY Corporation Balance Sheet 20X4

Assets

o Cash: $50,000

o Accounts Receivable: $180,000

o Inventory: $320,000

o Plant and Equipment: $500,000

o Total Assets: $1,050,000

Liabilities and Equity

o Accounts Payable: $190,000

o Accrued Expenses: $40,000

o Long-term Debt: $170,000

o Common Stock: $90,000

o Retained Earnings: $250,000

o Total Liabilities and Equity: $1,050,000

Required Ratios:

o Current Ratio (5 marks)

o Quick Ratio (5 marks)

o Debt-to-Assets Ratio (5 marks)

o Total Asset Turnover (5 marks)

o Days Sales Outstanding (7 marks)

2. Describe the role of institutional investors in corporate governance today. (8

marks)

3. ABC Corp reported $600,000 in retained earnings on December 31, 20X3,

paid dividends of $40,000, and had retained earnings of $520,000 on
 December 31, 20X2. Calculate ABC Corp’s net income for 20X3 and earnings
per share if 50,000 shares were outstanding. (15 marks)

4. David plans to purchase a house in six years:

o a. Determine the amount David should invest now in an account

earning 6% annually to reach a target down payment of $80,000. (5
marks)

o b. If David opts for monthly deposits starting today, what is the required
deposit to accumulate $80,000 in six years at an 8% annual interest
rate, compounded monthly? (10 marks)

5. Explain how a change in the discount rate affects the present value of a future
cash flow. (15 marks)