# Principles of Finance – 3 Problems

Assignment Requirements

Solve the attached 3 Problems as simple as possible with steps
Problem 1 (25 marks)
The following data is attributed to X and Y firms (X).

Investment (X)
Investment (Y)

Assets
\$300,000
\$500,000

Operating Profit
\$180,000
\$300,000

Book Value Per Share
\$4
\$10

Interest Rate on Loans
15%
15%

Tax Rate
30%
30%

Percentage of Financial Leverage
60%
25%

Based on the computations of EPS, Which capital structure is more preferable based 60% or 25% financial leverage?
Problem 2 (50 marks)
The following information had been taken from the accounting books of Dania Corporation on December 31, 2014:

Sales
\$2,500,000
Sales Returns and Allowances
\$35,000

Purchases
1,350,000
Sales Discount
75,000

Purchase Returns
50,000
Income Tax Rate
30%

Interest Expenses
\$75,000
Other Expenses
85,000

Other Revenue
45,000
Selling Expenses
75,000

Depreciation Expense
70,000
80,000

Inventory, January 1, 2010
200,000
Inventory, Dec. 31, 2010
100,000

Receivables, Jan. 1, 2010
30,000
Receivables, Dec. 31, 2010
50,000

(a)    Prepare the income statement of Tamara Incorporation by the end of year 2010.
(b)   Compute EPS if number of common shares 896,000 and no preferred stocks are used.
(c)    Compute Inventory turnover and average number of days for inventory on hand.
(d)   Assuming that 75 percent of sales were on credit, Compute receivables turnover and average number of receivables outstanding.

Problem 3 (25 marks)
Mazen is now considering the investment of \$30,000 in three available mutually exclusive investments. The prevailing discount rate is 10%. Using the Payback Period and the Net Present Value techniques list these three orders based on their degree of attractiveness.

Year
Project A
Project B
Project C

0
\$(30,000)
\$(30,000)
\$(30,000)

1
10,000
5,000
6,000

2
8,000
5,000
6,000

3
7,000
7,000
6,000

4
5,000
8,000
6,000

5
5,000
10,000
6,000

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