Download - FBF Spring 2015 Tutorial 1
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25300
Fundamentals of Business Finance
Tutorial 1
Assumed Knowledge and basicprinciples
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IMPORTANTSEMESTER QUIZZES
20% of your marks for FBF will come from 3 quizzes each worth10% for a total possible mark of 20. Students may attempt 2 or
all 3 quizzes and their best 2 marks will be taken into account.
The quizzes will be 30 minutes in duration and commence at thevery beginning of the tutorial. You must attend the tutorial you are
enrolled in. No extra time will be given for late arrivals.
The quizzes are closed book and a formula sheet will be provided.
Calculatorsare required for the quizzes and EVERY tutorial. Mobile
phones are not acceptable in tutorial classes, quizzes or exams.
Quiz Date Covering lectures
1 24 Aug (week 5) Lectures 1, 2, 3
2 14 Sept (week 8) Lectures 4, 5
3 19 Oct (week 11) Lectures 6, 7, 8
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Question 1
List some reasons why a basic understanding of financeprinciples is important to you.
So you can understand and manage your personal
finances
such as home loans and superannuation
A sound knowledge of finance is important in your
work life, whether you choose to be a finance industry
professional, are self-employed or an employee
The impact of the finance industry on the economy
such as the global financial crisis
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Question 2Classify each of the following items into one of the five
categories: Asset, Liability, Equity, Revenue or Expense. Dothese items appear on the Income Statement or on the Balance
Sheet?
Item Account category Statement category
Account receivablesDepreciation expense
Rent received
Bank overdraft
Retained profits
Trade payables
Stock on hand
Provisions
Brand names
Dividend paid
Asset
Asset
Liability
Asset
Expense
Revenue
Liability
EquityLiability
None
Balance sheetIncome statement
Income statement
Balance sheet
Balance sheetBalance sheet
Balance sheet
Balance sheet
Balance sheet
Neither
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Question 3
Prepare a balance sheet as at 30/6/15 based on the following: Cash $197,000
Patents $863,000
Accounts payable $288,000
Accounts receivable $265,000
Inventory $563,000
Notes payable $190,000
Retained earnings $2,804,000
Long term debt $1,980,000
Net fixed assets $5,300,000
Ordinary shares ???
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Assets Liabilities and owners equity
Current assets Current liabilities
Long-term debt
Fixed assets
Owners equity
Total assets Total liabilities and
owners equity
Balance Sheet as at 30 June 2015
Cash 197,000
Accounts receivable 265,000
Inventory 563,000
Net fixed assets 5,300,000
Patents 863,000
Accounts payable 288,000
Notes payable 190,000
$1,980,000
Ordinary sharesRetained earnings 2,804,000
$1,025,000
$6,163,000
$7,188,000
$478,000
$4,730,000
$7,188,000
$1,926,000
7,188,000 - 478,000 - 1,980,000
4,730,0002,804,000
Total
Total
Total
Total
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Question 4
a) What is depreciation? A non-cash expense that represents an allocation of a
non-current assets cost over its useful life.
It is calculated for accounting purposes and is also atax deduction.
The depreciation charged to the accounts may bedifferent to the amount claimed as a taxdeduction.
b) Where does depreciation appear on the balance sheet?
It is an expense on the Income Statement.
Accumulated depreciation is recorded as an offset
against non-current assets on the Balance Sheet.
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Question 4 continued
c) Machinery costing $150,000 is being depreciated over15 years.
Annual depreciation expense = asset cost/life
= $150,000/15
= $10,000
i. What is the machinerys book value (or written downvalue) after 6 years?
BV (or WDV) = Costaccumulated depreciation= 150,000(10,000 x 6)
= $90,000
Assume straight-line
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Question 4 continued
ii. If the machinery is sold for $65,750 after 8 years isthere a gain or loss on disposal?
BV (or WDV) = $150,000(10,000 x 8)
= $70,000
Losson sale of $70,00065,750 = $4,250
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Question 5
a) What is working capital and net working capital?
Working capital is the firms current assets and
current liabilities.
Net working capital is calculated as:
current assets current liabilities
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Question 5 continued
b) Given the following information, calculate net working capital:
Total equity = $16.7m
Total assets = $38.4m
Total non-current liabilities = $15.6m
Current assets = $5.6m
Total liabilities = Total assetsTotal equity
= 38.4m16.7m = 21.7m
Current liabilities = Total liabilitiesNon-current liabilities
= 21.7m15.6m = 6.1m
Net working capital = current assetscurrent liabilities
= 5.6m6.1m = -$0.5m
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Question 6
Calculate EPS given the following information: EBIT = $975,000
Sales = $3,560,000
Tax rate = 30%
Number of shares outstanding = 250,000
Interest expense = $256,000
earnings per share
earnings before
interest and tax
EBIT interest 1 tax rateEPS
number of shares
975,000 256,000 1 0.3250,000
$2.01
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Question 7
Explain what is meant by a tax deduction.
A cost that is incurred in the generation of income
and is allowed as a tax deduction by the ATO.
These costs reduce the firms profits and therefore
reduce the amount of tax payable.
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Question 8
A company has the following operating results for
2015:
Sales $23,730
Cost of goods sold $16,780
Dividends paid $616
Depreciation expense $2,840
Interest expense $414If the tax rate is 30%, what is net income for 2015?
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Question 8continued
Income statement
Sales $23,730
Cost of goods sold 16,780Depreciation 2,840
EBIT $4,110
Interest expense 414
Taxable income
Taxes (30%)
Net income
$3,6961,109
$2,587
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Question 9
a) What is 21% of 492?
0.21 x 492 = 103.32
b) Increase 1258 by 75.5%.
1258 x (1 +.755) = 2207.79
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Question 10
Solve the equation 5x7 = 132(1.0157)6
5x - 7 = 144.93278785x = 151.9327878
x = 30.3866
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Question 11
Substitute i = 0.025 into the equation
and simplify.
141 (1.025)PV 45
0.025
526.09
0.292272804450.025
141 (1 i)PV 45
i
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Question 12
Solve the equation:
320(X + 5) = 720(5.5X - 15)
320X + 1600 = 3960X - 10800
12400 = 3640X
X = 3.4066
just oneof many
ways to
solve
X 5 5.5X 15
720 320