Nimitz Rental Company

Q1. Identify the key financial decisions facing the financial manager of any business firm and Explain the meaning of each decision? (1 mark)

Q2. What can happen if a firm is poorly managed? (1 mark)

Q3. If the expected inflation rate is 10 percent and the real rate of interest is 4 percent:

Compute the nominal rate of interest. (Hint: use equation 2.1) (0.5 mark)

Briefly differentiate between the nominal and the real rates of interest. (0.5 mark)

Q4. Nimitz Rental Company provided the following information to its auditors. For the year ended March 31, 2011, the company had revenues of $878,412, general and administrative expenses of $352,666, depreciation expenses of $131,455, leasing expenses of $108,195, and interest expenses equal to $78,122.

If the company’s tax rate was 34 percent, what is its net income after taxes? (1 mark)

Q5. Modern Appliances Corporation has reported its financial results for the year ended December 31, 2011.

Assets

Cash and cash equivalents $ 514,412,159

Short-term borrowing $ 117,109,865

Accounts receivable 1,046,612,233

Trade accounts payable 466,937,985

Inventories 981,870,990

Other current liabilities 994,289,383

Other current assets 313,621,610

Total current assets $2,856,516,992

Total current liabilities $1,578,337,233

Net fixed assets 754,660,275

Long-term debt 1,200,691,565

Total liabilities $2,779,028,798

Goodwill 118,407,710

Common stock 397,407,352

Other assets 665,058,761

Retained earnings 1,218,207,588

Total equity 1,615,614,940

Total assets $4,394,643,738

Total liabilities and stockholders’ equity $4,394,643,738

Using the information from the financial statements, complete a comprehensive ratio analysis for Modern Appliances Corporation.

a. Calculate these liquidity ratios: current and quick ratios. (0.2 mark)

b. Calculate these efficiency ratios: inventory turnover, total asset turnover. (0.2 mark)

d. Calculate these leverage ratios: total debt ratio, debt-to-equity ratio, Equity multiplier. (0.2 mark)

e. Calculate these profitability ratios: gross profit margin, net profit margin, ROA, ROE. (0.2 mark)

f. Use the DuPont identity, and after calculating the component ratios, compute the ROE for this firm. (0.2 mark)