🇳🇬 PATRIOT ODUNARO BABATUNDE JIMOH
76 TUTORIAL QUESTIONS on
acc 413-FINANCIAL MANAGEMENT 1
(CONTACT PATRIOT FOR SOLUTIONS ON 08038454008)
76 TUTORIAL QUESTIONS ON ACC 413-FINANCIAL MANAGEMENT 1
TOPIC 1: THE NATURE, OBJECTIVES AND SCOPE OF FINANCIAL
MANAGEMENT.
1. Define Financial Management and explain five (5) major features that describe its nature.
2. State and explain five (5) objectives of financial management.
3. Ajimatanraeje Nigeria Limited has the following information:
Current Assets N720,000
Current Liabilities N360,000
Calculate the Current Ratio and interpret the result.
4. Explain the concept of wealth maximization as an objective of financial management.
5. Distinguish clearly between profit maximization and wealth maximization.
6. Asese Nigeria Limited earned a net profit of N1,500,000 and paid dividends of N600,000.
Calculate the Dividend Payout Ratio.
7. Explain five (5) areas covered by the scope of financial management.
8. Akinola Rebecca Limited has total debt of N800,000 and shareholders’ equity of N1,200,000.
Calculate the Debt-to-Equity Ratio and explain the result.
9. Identify and explain ten (10) major financial management decision areas.
10. A project requires an initial investment of N500,000 and yields annual cash inflows of N100,000.
Calculate the Payback Period.
11. Explain five (5) reasons why financial management is important in a business organization.
12. Anuoluwa NigeriaLimited has:
Total Assets N3,000,000
Total Liabilities N1,200,000
Calculate the Net Worth (Shareholders’ Equity).
TOPIC 2: CAPITAL BUDGETING.
13. Define Capital Budgeting.
14. State and explain FIVE (5) objectives of capital budgeting.
15. Outline five (5) importance of capital budgeting to a business organization.
16. Explain the capital budgeting process.
17. Distinguish between discounted and non-discounted capital budgeting techniques.
18. Ayeni Nigeria Limited plans to invest N800,000 in a project that is
expected to generate N200,000 annually for 5 years.
The estimated annual accounting profit is N120,000.
Required:
(a) Payback Period
(b) Accounting Rate of Return (ARR)
19. A project requires an initial investment of N600,000.
It is expected to generate cash inflows of N180,000 per year for 5 years.
The cost of capital is 10%.
Required:
(a) Net Present Value (NPV)
(b) State the decision rule.
(c) Discounted Payback Period.
(d) Profitability Index (PI).
20. A project costs N500,000 and generates N150,000 annually for 5 years.
The company’s cost of capital is 12%.
Required:
(a) Compute the IRR (assume IRR ≈ 14%)
(b) State the investment decision.
21. State five (5) advantages of Net Present Value.
22. State five (5) limitations of capital budgeting techniques.
23. Explain why discounted cash flow techniques are preferred to non-discounted techniques in capital budgeting decisions.
24. Distinguish between risk and uncertainty in capital budgeting by bringing- out ten concrete factors in tabular form.
25. Explain any four (4) methods used to handle risk and uncertainty in investment decisions.
26. Nestle Nigeria Plc is considering a project costing N1,000,000 expected to generate cash
inflows of N400,000 annually for 5years. The cost of capital is 12%.’
Required: Calculate:
(a) Net Present Value
(b) Internal Rate of Returns
TOPIC 3: FINANCING AND CAPITAL STRUCTURE DECISION.
27. Define financing decision and explain five (5) objectives of capital structure decision.
28. Explain five (5) factors that influence capital structure decision.
29. Discuss the Traditional Theory of capital structure.
30. Aiyelabola Nigeria Linited has the following capital structure:
|
Source |
Amount (N) |
Cost |
|
Equity |
600,000 |
16% |
|
Debt |
400,000 |
10% |
Corporate tax rate is 30%
Required:
Calculate the Weighted Average Cost of Capital (WACC).
31. Aiyedun Nigeria Limited pays an annual dividend of N5 per share. Current market price of the share is N50. Dividend grows at 6% per annum.
32. Aiyedade Nigeria Limited has earnings before interest and tax (EBIT) of N500,000. It pays interest of N120,000 per annum. Corporate tax rate is 30%.
Required:
Calculate the value of tax shield on interest.
33. Banuso Nigeria Limited issued N1,000,000 debentures at 12% interest. Tax rate is 35%.
Required:
Calculate the after-tax cost of debt.
34. Explain why excessive use of debt can be dangerous to a firm.
Differentiate between equity financing and debt financing.
35. Write short notes on the following:
a. Financial leverage
b. Optimal capital structure
c. Weighted Average Cost of Capital
36. A firm paid a dividend of N6 per share last year. Dividends are expected to grow at a constant rate of 8% per annum. The current market price of the share is N60.
Required: Calculate the cost of equity.
37. A company paid a dividend of N4 per share last year. The dividends are expected to grow at a constant rate of 5% per annum. The current market price of the share is N40.
Required: Calculate the cost of equity
38. A company expects to pay a dividend of N3 per share next year. The cost of equity is 12%, and dividends grow at 4% per annum.
Required: Calculate the market value of the share.
39. A company issues N1,000,000 debentures at 10% interest. Tax rate = 30%. Find after-tax cost of debt.
40. Boluwatife Nigeria Limited provides:
Current share price ((P0)) = N20
Expected dividend next year ((D1)) = N2
Dividend
growth rate ((g)) = 5%
Calculate Cost of equity
41. Foyegbe Nigeria Limited provides:
Equity ((E)) = N500,000
Debt ((D)) = N300,000
Cost of equity ((Ke)) = 15%
Cost of debt ((Kd)) = 10%
Tax rate = 30%
Calculate Weighted Average Cost of Capital.
42. A company has equity of N400,000 and debt of N200,000. Cost of equity = 12%, cost of debt = 8%, tax = 30%. Compute WACC.
43. If Brits Nigeria Plc provides the following dividend:
Year 1 N10.50
Year 2 N11.03
Year 3 N11.58
Calculate the growth rate (g)
44. If Emiloju Nigeria Plc provides the following data:
Year 1 dividend N4.00
Year 2 dividend N4.20
Year 3 dividend N4.41
Year 4 dividend N4.63
Calculate the growth rate (g)
TOPIC 4: DIVIDEND POLICY DECISIONS.
45. Define dividend and dividend policy.
46. Explain five (5) objectives of dividend policy.
47.Aiyefele Nigeria Limited earned a net profit of N1,800,000 and declared dividends of N720,000. Calculate:
(a) Dividend Payout Ratio
(b) Retention Ratio
48. Explain three (3) forms of dividend a company may pay.
The following information is available for Emilokan Nigeria Limited:
Total Dividend N500,000
Number of Ordinary Shares 250,000
Market Price per Share N20
Calculate:
(a) Dividend per Share (DPS)
(b) Dividend Yield
49.Differentiate between Stable Dividend Policy and Residual Dividend Policy.
50. Adeleke Nigeria Limited has a Net Profit after Tax (PAT) of N2,500,000. It plans to retain 60% of earnings for reinvestment. Calculate:
(a) Amount to retain
(b) Dividend to distribute
51. Identify and explain five (5) factors influencing dividend policy.
52. Alex Nigeria Limited has EPS of N5. Market price per share is N50. The company declares a dividend of N2 per share. Calculate the Dividend Payout Ratio and Retention Ratio.
53. Explain three (3) theories of dividend policy.
54. Alase Nigeria Limited has expected dividend next year of N4, cost of equity of 12%, and expected growth rate of 5%. Calculate the market price of the share using Gordon’s Dividend Growth Model.
TOPIC 5: WORKING CAPITAL MANAGEMENT.
55.
Define working capital.
56. Distinguish between gross and net working capital.
57. State five (5) objectives of working capital management.
58. State five (5) components of working capital.
59. Explain the difference between permanent and temporary working capital.
60. Mention five (5) factors affecting working capital requirements
61. Aladewura Nigeria Limited has the following balances:
Cash N200,000
Accounts receivable N300,000
Inventory N500,000
Accounts payable N400,000
Bank overdraft N100,000
Required:
(a) Compute Net Working Capital
(b) Compute Current Ratio
(c) Compute Quick Ratio
62. Amiolorun Nigeria Limited has the following data:
Inventory holding period 50 days
Receivables collection period 30 days
Payables payment period 20 days
Required: Compute the operating cycle.
63. Alanuloluwa Nigeria Limited plans to produce 24,000 units of product annually.
Cost per unit N400
Raw materials period 2 months
WIP period ½ month
Finished goods period 1 month
Debtors period 2 months
Creditors period 1 month
Required: Estimate the working capital requirement.
64. Adebowale Nigeria Limited has:
Net Working Capital N400,000
Sales N2,400,000
Required: Compute the working capital turnover ratio.
65. State five (5) techniques of managing working capital.
66. Explain the difference between conservative and aggressive working capital policy.
TOPIC 6: FINANCIAL MANAGEMENT OF SMALL AND MEDIUM SCALE
ENTERPRISES.
67. Define financial management and explain its importance in Small and Medium Scale Enterprises (SMEs).
68. List and explain five major
objectives of financial management in SMEs.
69. Explain
the difference between internal and external sources of finance for SMEs.
70. What are the main challenges SMEs face in financial management? Provide five examples.
71. Explain the concept of working capital and its importance in SMEs.
72. A small enterprise has the following balances:
Cash N120,000
Debtors N250,000
Inventory N180,000
Creditors N200,000
Calculate the working capital and comment on the liquidity position.
73. An SME expects the following cash flows for the month of February:
Cash inflow N400,000
Cash outflow N280,000
Calculate the net cash position.
74. A small bakery has the following data:
Fixed Cost (FC) N100,000
Selling Price per unit (SP) N500
Variable Cost per unit (VC) N300
Calculate:
(a) Contribution per unit
(b) Break-even point in units
75. An SME expects sales of N600,000. The variable costs are 60% of sales, and fixed costs are N120,000. Calculate the expected profit.
76. An SME borrows N500,000 at an interest rate of 10% per annum. Corporate tax rate is 30%. Calculate the after-tax cost of debt.
🇳🇬 PATRIOT ODUNARO BABATUNDE JIMOH MAY ALLAH BLESS YOU ABUNDANTLY ALLAHUMO KUNFAYAKUN AMIN!
