Question 1
(5 Marks)
1.1 In terms of the financial goal of a firm, corporate owners receive realizable return
through....
a. increase in share price and earnings per share
b. profit and earnings per share
c. earnings per share and cash dividends
d. increase in share price and cash dividends
...
1.1 In terms of the financial goal of a firm, corporate owners receive realizable return
through….
a. increase in share price and earnings per share
b. profit and earnings per share
c. earnings per share and cash dividends
d. increase in share price and cash dividends
1.2 A financial manager is confronted by three alternative assets: AB, BC and CD. Each
asset cost R30 000 and is expected to provide earnings over a four year period as
indicated in the table below:
Year 1 Year 2 Year 3 Year 4
AB R22 000 R15 000 R10 000 R8 000
BC R6 000 R15 000 R11 000 R7 000
CD R8 000 R15 000 R20 000 R23 000
According to the profit maximization principle, the financial manager would choose
a. Asset CD
b. Asset AB
c. Asset BC
1.3 Financial managers evaluating decision alternatives or potential investments must
consider
a. only profit
b. both profit and earnings per share
c. risk, return, and the impact on share price
d. only risk
1.4 When the risk of a share investment increases, the investors’
a. return will increase
b. required rate of return will increase
c. required rate of return will decrease
d. none of the above
i. a and c
, ii. b and c
iii. c
iv. b
1.5 One of the following options could be used to insure that management decisions are
in the best interest of the shareholders
a. audit the financial statements of the firm
b. threaten to fire managers who are seen as not performing adequately
c. link management compensation to the performance of the company’s share price
d. senior management not to delegate job
Question 2
(10 Marks)
ICC Corporation had the following transactions for the year ended 28 February 2016
1. Cash in the bank deposited as opening capital, R 60 000
2. Vehicle purchased from PYN Motors on credit for R20 000
3. Office equipment purchased by cheque, R10 000
4. Paid water and electricity account by cheque, R4 000
5. Received a cheque from virgin limited for service rendered, R20 000
6. Paid wages, R30 000
7. Paid R10 000 to PYN motors in part of the settlement of the entity’s account
8. Paid telephone account by cheque, R500
9. Two computer desktop purchased on credit from NFH Technologies (PTY) LTD
for R12 000
Required: Use the accounting equation to analyse the above mentioned transactions.
Hint: Show the effect of each transaction on the accounting equation with a plus (+)
sign for increase and minus (-) sign for decrease.
No Asset = Liabilities + Owner’s Equity
, Memorandum
Question 1
1.1 (d) increase in share price and cash dividends
1.2 (a) CD
1.3 (c) risk, return and the impact on share price
1.4 (iv) (b) required rate of return will increase
1.5 (c) link management compensation to the performance of the company’s share price
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