DEFINITIONS AND EXAMPLES (4)

1. Identify three groups that may be seen as being stakeholders in a business. (2 marks)
2. Briefly explain the main purpose of each of the three main financial statements - income statement, balance sheet and cash flow statement. (6 marks)
3. What is a business plan? Define the term and provide examples of the information that would be found in a strategic business plan. (2marks)
4. Define the terms "opportunity cost" and "sunk cost". Give an example of each. (4 marks)

SHORT ANSWER EXPLANATIONS (4)

1. How are capital and working capital different? (2 marks)
2. Explain the concepts of micro and macro factors and contrast the two. How are they different, and why should they be a part of your financial planning considerations? (4 marks)
3. What are the significant advantages and disadvantages of the sole proprietorship/partnership form in comparison with the corporate form? (4 marks)
4. What is leverage and how does it work? What is the main concern about using it? (3 marks)

COMPUTATION (2)

1. Baker Corporation conducted the following activities during 2001:
2. they sold 10,000 shares of their own stock for $20.00 per share.
3. they issued bonds for which they received $500,000.
4. they paid dividends to their stockholders totaling $85,000.
5. they sold a piece of equipment for $50,000 that they were carrying on their books for $20,000.
6. they earned net income of $140,000.

What would be shown on the Statement of Cash Flows for "cash from financing activities" based on the information above?(4 marks)

1. Sandal Corporation's financial statements for the last year are shown below. All figures are in thousands ($000) (18 marks)

SANDAL'S CORP. FINANCIAL STATEMENTS 2021
BALANCE SHEET	INCOME STATEMENT
ASSETS
Cash	$2,000	Sales	$100,000
Accounts receivable	12,000	COGS	80,000
Inventory	14,000	Gross Margin	$20,000
Current Assets	$28,000	Cash Expenses	$8,000
Gross Fixed assets	$27,000	Depreciation	1,600
Accumulated depreciation	(16,000)	EBIT	$10,400
Net fixed assets	11,000	Interest	800
Total assets	$39,000	EBT	$9,600
LIABILITIES		Tax	2,600
Accounts payable	$3,000	Net Income	$7,000
Accruals	1,000
Current Liabilities	$4,000
Long term Debt	10,000
Equity	25,000
Total liabilities & equity	$39,000

Develop Sandal's: Current Ratio Quick Ratio A/R Collection Period (a.k.a DSO) Inventory Turnover(a.k.a DIO) Debt to Equity ratio Times Interest Earned (TIE) Return on Sales (ROS) Return on Assets (ROA) Return on Equity (ROE)

Additional Instructions:

Ratios that may usually ask for averages will be calculated with given information only. That means that if you require average inventory, you will use the provided figure for inventory in the balance sheet and not calculate an average using a beginning and ending. If an equation calls for the net of a financial figure, you will use the given number and assume it is the net if a breakdown is not provided. For example, "Net Sales" = Sales.

Show your calculations. Each ratio is worth 2 points. 1 pt. for showing the expression of the calculation, 1 pt. for the correct answer.

Example:

Fixed Asset Turnover = Net Sales/Avg. Fixed Assets

Fixed Asset Turnover = 100,000/11,000 = 9.1

ESSAY QUESTION (1)

1. Financial plans are statements of goals as well as predictions of future performance. Discuss how and why this dual purpose can create problems. (4 marks)

CASE STUDY (1)

10 marks

You've just been hired as the finance manager at Clarks Ltd., a new company in the hi-tech computer business. It quickly has come to your attention that the business does virtually no planning. An extensive business plan was put together when it was started seven years ago and revised when additional funding was required four years later. Other than on those occasions, no planning seems to have been done at all.

The firm was founded byits president, an entrepreneur named John Dylan, and was based on a new tech product that he invented. Initial demand for the gadget was overwhelming, and the firm grew rapidly if chaotically until about a year ago when competition started to pop up and impact sales.

The following conditions exist today:

• Sales of the original product are beginning to decline.
• The organization seems to have a number of staff and departments, but their function and value aren't clear.
• The engineering department is pursuing several new developments that have commercial possibilities, but progress has been limited and no one seems to have thought through how money will be made from the ideas.
• Additional funding is required to get possible new products that might be developed to market.

John has suggested that you dust off the old business plan for another run at investors.

You feel that the company could be in danger, and that the source of the problem is that management hasn't done any real forward planning. In your opinion the first step is to install a competent planning system.

Write a memo to John outlining your concerns and suggestions.

Include the following in your memo:

1. The problem.
2. How management's approach has to change and why.
3. The need, importance, and types of inclusions found in a well-defined financial plan.
4. The benefits John Dylan can expect to realize by planning in a careful, strategic way.