FBF Spring 2015 Tutorial 1

7/25/2019 FBF Spring 2015 Tutorial 1

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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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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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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

FBF Spring 2015 Tutorial 1

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