FIN309 Specimen Examination Paper

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FIN309 Specimen Examination Paper Finance ____________________________________________________________________________________ Time allowed: 2 hours ____________________________________________________________________________________ INSTRUCTIONS TO STUDENTS: 1. This examination contains FOUR (4) questions and comprises TEN (10) printed pages (including cover page). 2. You must answer ALL questions. 3. All answers must be written in the answer book. At the end of the examination Please ensure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. If you have used more than one answer book, please tie them together with the string provided. THE…show more content…
(Total 100 marks) Modern Furniture Company was started in 1992 in California and its business includes manufacture of furniture with modern design. The financial statements of Modern Furniture Company are shown in Exhibit 1 and 2. Exhibit 1 Income Statement for year ending December 31, 2011 (Figures in $ million except for per share data) 2011 $2,200 $1,980 $53.3 $166.7 $42.5 $49.7 $74.5 $43.8 $30.7 $5.26 $3.09 Revenues Costs Depreciation EBIT Interest Taxes Net income Dividends Retained Earnings Earnings per share Dividends per share Exhibit 2 Balance Sheet as of December 31, 2010 and 2011 (Figures in $ million) 2010 Current assets Cash and Securities Receivables Inventory Total Current assets Fixed assets: Property, Plant and Equipment Less Accumulated depreciation Net fixed assets Total Assets Current Liabilities Debt due within 1 year Payables Total Current Liabilities Long-term debt $75.0 $433.1 $339.9 $848.0 2011 $110.0 $440.0 $350.0…show more content…
He has calculated the appropriate ratios for Modern Furniture and has also collected the information for the furniture industry as a whole. These are shown in Exhibit 3. Exhibit 3 Ratios Executive Paper 72 days 5.66 Times 66.36 days Ratio Average Collection Period Inventory Turnover Average Payables Period Paper Industry 40 days 6 times 40 days John is concerned that his credit terms and collection policy seems to be very lax and requires fine tuning to reach the standards of the paper industry. He is also concerned about the delayed payments to the suppliers. Credit terms currently offered to its customers is “net 60”. He has analysed the payment pattern of the customers. If any account is not collected within 90 days after sales, that account is considered as not collectible and written off as bad debt loss. However, it is seen that all the customers pay within 90 days and the company has not written off any account as bad debt. The current aging schedule of accounts receivables is shown in Exhibit 4. Exhibit 4 Aging Schedule of Accounts Receivables Age of Receivables 1-10 days 11 - 20 days 21 - 30 days 31 - 40 days 41 - 50 days 51- 60 days 61- 70 days 71 - 80 days 81 - 90 days > 90 days Percentage of Receivables 5% 5% 10% 10% 15% 45% 5% 3%

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