PirMehr Ali Shah
Arid Agriculture University, Rawalpindi
Office of the controller of Examinations
Final Term Exam / Fall 2020 (Paper Duration 24 hours)
To be filled by Teacher
Course No.:MGT-525 Course Title: Introduction To Financial Management
Total Marks: 30 Date of Exam: 08 Feb 2021
Degree:BBA/BS Commerce Semester: 5 Section:
Marks
[Link]. 1 2 3 Obtained/
TotalMarks
Marks
Obtained
Total Marks in Words:
Name of the teacher: Bushra Zulfiqar
Who taught the course: Signature of teacher / Examiner:
Q#1:Al Fateh Inc., has a seasonal pattern to its business. It borrows under a line of credit from
Central Bank at 1% over prime. Its total asset requirements now (at year end) and estimated
requirements for the coming year are (in millions):
Now 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Total Asset 6.5 6.8 7.5 7.9 8
Requirement
Assume that these requirements are level throughout the quarter. At present the company has
$4.5 million in equity capital plus long-term debt plus the permanent component of current
liabilities, and this amount will remain constant throughout the year. The prime rate currently is
15%, and the company expects no change in this rate for the next year. Mendez Metal Specialties
is also considering issuing intermediate-term debt at an interest rate of 18.5 percent. In this
regard, three alternative amounts are under consideration: zero, $1.5million, and $1.8 million.
All additional funds requirements will be borrowed under the company’s bank line of credit.
Required: Determine the total dollar borrowing costs for short- and intermediate-term debt
under each of the three alternatives for the coming year. (Assume that there are no changes in
current liabilities other than borrowings.) Which alternative is lowest in cost?
(10)
Q#2:Alexandra five Steel Inc. is considering a new project to expand its business. The project
will involve the following cash flows.
Year Cash flows
0 (120000)
1 27000
2 32000
3 26000
4 19000
5 16000
6 17000
7 15000
For cost recovery purpose asset falls in five year property classes for which depreciation rates are
(20%,32%,11.52%,11.52%,5.76%).The tax rate is 25% and the required rate of return is 13%.
Requirement
1. Calculate after tax cash flows (3)
2. Calculate Payback period. (2)
3. Calculate the net present value. Is it acceptable? (2)
4. Calculate IRR. (3)
Q#3:The Asia Manufacturing Company prepared the following information relevant to
Statement of Cash flows.
Balance Sheet
Account Title 31- Dec-2019 31- Dec-2020
Cash Rs. 62,000
200,000
Accounts [Link] 60,000 82,000
Inventory 12,000 20,000
Prepaid expenses 6,000 10,000
Equipment . net 300,000 500,000
Patent 90,000 70,000
Total assets 668,000 742,000
Accounts payable 40,000 60,000
Salaries payable 60,000 50,000
Interest payable 6,000 9,000
Income Tax payable 12,000 20,000
Mortgage payable 120,000 110,000
TFCs payable 200,000 100,000
Ordinary shares 158,000 173,000
Unappropriated profit 72,000 220,000
Total liabilities & 668,000 742,000
Shareholder Equity
Income Statement
For the year ended 31, December 2020
Sales Rs. 820,000
Cost of Goods Sold (380,000)
Depreciation Expense (100,000)
Amortization Expense (20,000)
Other Expenses (46,000)
Gain, excess of 10,000
insurance proceeds over
book value of equipment
destroyed
Premium on redemption (7,000)
of TFCs
Interest Expense (22,000)
Income Tax expense (72,000)
Net Income (183,000)
Additional Information
a) Asia Manufacturing Company declared and paid Rs.35, 000 of dividend in 2020.
b) Equipment (Cost 100,000: accumulated depreciation Rs. 60,000) was destroyed by fire.
Proceeds from insurance: Rs.50000.
c) TFCs were redeemed on January 1, 2020 at 7% premium.
Required:
1. Prepare Statement of Cash flow for the year 2020 using Direct Method . (7)
2. Using Indirect method prepare only Operating Section. (3)
Good Luck
