Posted: September 13th, 2017
Principles of Finance – 3 Problems
Paper, Order, or Assignment Requirements
Solve the attached 3 Problems as simple as possible with steps
Problem 1 (25 marks)
The following data is attributed to X and Y firms (X).
| Investment (X) | Investment (Y) | |
| Assets | $300,000 | $500,000 |
| Operating Profit | $180,000 | $300,000 |
| Book Value Per Share | $4 | $10 |
| Interest Rate on Loans | 15% | 15% |
| Tax Rate | 30% | 30% |
| Percentage of Financial Leverage | 60% | 25% |
Based on the computations of EPS, Which capital structure is more preferable based 60% or 25% financial leverage?
Problem 2 (50 marks)
The following information had been taken from the accounting books of Dania Corporation on December 31, 2014:
| Sales | $2,500,000 | Sales Returns and Allowances | $35,000 |
| Purchases | 1,350,000 | Sales Discount | 75,000 |
| Purchase Returns | 50,000 | Income Tax Rate | 30% |
| Interest Expenses | $75,000 | Other Expenses | 85,000 |
| Other Revenue | 45,000 | Selling Expenses | 75,000 |
| Depreciation Expense | 70,000 | General & Administrative Expenses | 80,000 |
| Inventory, January 1, 2010 | 200,000 | Inventory, Dec. 31, 2010 | 100,000 |
| Receivables, Jan. 1, 2010 | 30,000 | Receivables, Dec. 31, 2010 | 50,000 |
- Prepare the income statement of Tamara Incorporation by the end of year 2010.
- Compute EPS if number of common shares 896,000 and no preferred stocks are used.
- Compute Inventory turnover and average number of days for inventory on hand.
- Assuming that 75 percent of sales were on credit, Compute receivables turnover and average number of receivables outstanding.
Problem 3 (25 marks)
Mazen is now considering the investment of $30,000 in three available mutually exclusive investments. The prevailing discount rate is 10%. Using the Payback Period and the Net Present Value techniques list these three orders based on their degree of attractiveness.
| Year | Project A | Project B | Project C |
| 0 | $(30,000) | $(30,000) | $(30,000) |
| 1 | 10,000 | 5,000 | 6,000 |
| 2 | 8,000 | 5,000 | 6,000 |
| 3 | 7,000 | 7,000 | 6,000 |
| 4 | 5,000 | 8,000 | 6,000 |
| 5 | 5,000 | 10,000 | 6,000 |
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