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fin 2601 assignment 1 semester 1
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Fin 2601 assignment oneAnswers are highlighted in red
QUESTION 1
What is a partnership's primary flaw, as a legal structure for conducting business?
1. The owners have unlimited liability, in that personal wealth can be taken to satisfy debts.
2. The owners lack secrecy, because regulations require firms to disclose financial results.
3. The owners, who are limited partners, have limited liability and cannot lose more than they
invested.
4. The owners, who are general partners, have unlimited liability and may have to cover the debts of
other
partners.
QUESTION 2
Which of the following is the best illustration of an agency problem? (Assume the company is paying
its employees’ travel expenses.)
1. Ariel, the controller, travels to Zimbabwe, in southeast Africa, to visit the Victoria Falls with friends.
While there, she talks to her friends about employment opportunities at the firm.
2. Benjamin, the chief financial officer, travels to Mozambique to meet with the bank that is loaning
the firm
money to build a factory inMozambique. While there, he tours Inhaca Island.
3. Zachariah, the president, travels to the Western Cape to attend an international convention
related to the
company's line of business. While there, he goes on the Robben Island half-day tour.
4. Eunice, the marketing director, travels to KwaZulu-Natal to attend a sales convention. While there,
she visits
the Drakensberg Mountain range.
QUESTION 3
Which one of the following would reduce the share price of a company?
1. decreasing the cash outflows
2. collecting money from customers at a faster rate
3. improving the timing of cash inflows
4. increasing the riskiness of future cash flows
3
QUESTION 4
, Which of the following two markets classify the sale of newly issued five-year securities by the
issuing
company as ‘trading’?
1. primary market and the money market
2. primary market and the capital market
3. secondary market and the money market
4. secondary market and the capital market
QUESTION 5
Saga Innovations pays 12% interest on its outstanding debt, which amounts to R900 000. The
company’s sales are R3 200 000, its tax rate is 40% and its net profit margin is 6%. What is the
company’s time interest earned ratio?
1. 1,75 times
2. 2,67 times
3. 3,96 times
4. 5,10 times
QUESTION 6
Third Rock Ventures sells all its merchandise on credit. It has a profit margin of 8%, days sales
outstanding were 60 days based on 360 days in a year, receivables of R180 000, total assets of R4000
000, and a debt ratio of 0,75. What is the company's return on equity (ROE)?
1. 1,92%
2. 3,30%
3. 8,64%
4. 12,5%
4
QUESTION 7
Grace The Brand Jewellery generated the following information from its financial statements:
Earnings after interest and taxes R600 000
Earnings per share R2,50 per share
Shareholder equity R1000 000
Market to book ratio 2,60
What is the company’s market price per share?
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