PRACTICE FINAL EXAM - B
CHAPTERS 7, 8, 9 & 10
This is a practice final exam. You are not required to submit this exam for grading. The answers will also be posted on Blackboard.
Read the instructions carefully. If there is any instruction you do not understand or have questions about please contact me immediately.
Note: The final exam is a reflection of your understanding of the subject. This includes your ability to correctly calculate the answers, and your ability to completely and properly prepare the financial reports as though you were presenting them to your senior management.
- There are four sections to this exam. With these instructions you will receive an Excel spreadsheet that has four parts in which you must calculate:
- The income statement and balance sheet for year 10 (chapter 9)
- Using the financials given:
- The cash flow statement for years 9 and 10 (chapter 7)
- The RNOA and ROCE for years 9 and 10 (chapter 8), and
- The operating performance for years 9 and 10 (chapter 10).
- Read the instructions carefully and completely before preparing your answers.
- If an answer requires an excel formula, include your formula in the cell where the answer is calculated. You must show how you determined the answer.
PART – 1Points: 29
The financial statements for year 9 is given. Using the following instructions, prepare the pro forma financial statement in the correct format for year 10. Note:
- You must first determine cash before you can determine the long term debt.
- The “current portion of LT Debt” in current liabilities is the same amount as “Long Term Debt – Current Portion” in Long Term Liabilities … only the latter is a negative amount.
1) Sales growth year 10 (based on year 9)30.0%
2) Gross profit margin (based on year 10 sales)48.0%
4) SG&A margin (based on year 10 sales)10.0%
5) CAPEX)25.0% year 9 gross PP&E
6) Depreciation expense26.0% year 10 gross PP&E
7) Interest Income6.0% year 9 investment.
8) Debt Interest expense8.0% year 9 gross LTD
9) Income Tax percent30.0%
11) AR Turnover (pertains to year 10 only, not average)9.0
12) Inventory Turnover (pertains to year 10 only, not average)10.0
13) Prepaid Expenses increase from year 915.0% of Yr 9
14) Intangible Assets purchase year 10$5,000
15) Investments purchase in year 10$5,000
16) Accumulated DepreciationCalculate
17) AP Turnover (pertains to year 10 only, not average)9.6
18) Current Portion LT Debt25.0% of Yr 9 LTD
19) Income Taxes Payable50% of Yr 10 Tax Expense
20) Deferred Income Taxes increase15.0% over Yr 9
21) Long Term DebtCalculate
22) Long Term Debt – Short Term PortionSee # 18 above
23) Assets/Shareholders’ Equity1.6
24) Common Stock sold year 102,000 shares @ $5.00/share
25) Treasury Stock purchased100 Shares @ $8.00/share
26) Retained EarningsCalculate
27) Shares Outstanding Year 105,400
28) Dividends paid to Common Share Holders$1.25 per share
Note: Check numbers given for Net Income and Equity
PART – 2Points: 40
Prepare a complete and properly formatted cash flow statement for years 9 and 10 using the indirect method. The CFS must be in the proper and complete format. Two point deduction if not in proper format.
Also, keep in mind, if your ending cash balance on the cash flow statement does not equal the cash balance on the balance sheet … your cash flow statement is incorrect. Don’t turn in answers that do not match the balance sheet cash.
PART – 3Points: 32
Using the financials for years 8, 9 and 10:
- Calculate the RNOA and ROCE using the basic formula methods for years 9 and 10. Carry the percentage answers to two decimal places, rounding up if over 5, rounding down if under 5.
- Then, for ROCE disaggregate it into its three major components: RNOA, Leverage and Spread. On the spreadsheet you must calculate and show the answers to 1 through 19 (below) in addition to the RNOA and ROCE calculations. Use averages where required. The NFE calculation includes interest income from investments … AND … interest expense from the lease and long term debt. Remember to adjust the net interest by (1-Tax).
- The Operating Assets (OA), Operating Liabilities (OL), Financial Assets (FA) and the Financial Liabilities (FL) are identified on the Excel spreadsheet in column E next to the corresponding balance sheet account.
- Avg NOA
- RNOA using simple methodCheck number provided
- Avg CE
- Avg NFO
- Avg NFE
- Disaggregated ROCE(Note: must equal ROCE (# 9 simple method)
PART – 4Points: 40
Calculate the following operating performance for years 9 and 10. Use averages where required. Show your calculation formulas in the spreadsheet:
Purchases (there is no depreciation in Inventory)
Purchases per Day
Debt to Equity
Accounts Receivable Turnover
Accounts Payable Turnover
Days to Sell Inventory
Days Sales in Receivables
Days COGS in Inventory
Days Purchases in AP
Conversion Period (Operating Cycle)
Net Trade Cycle
Cash Flow Ratio