Business Finance

Exam Version

RULES & REGULATIONS

· The first 15 minutes of the exam session will be used to review the exam before commencing; a Q&A session is allowed during these 15 minutes. Students can ask their question and the professor’s response will be shared with the entire class. No disrupting the class after the first 15 minutes after the exam has been distributed.

· No student will be allowed in the exam session after 15 minutes.

· Students may only have a pen and calculator (if specified) on the desk. No extra paper, books, mobile phones, or electronic device is allowed. Any extra paper needed will be brought to you by the administration department upon request. All mobile phones should be switched off and students’ belongings on the floor at the front of the class; any person found with an unauthorized device, concealed or otherwise, will receive a zero on the exam.

· If a calculator has been authorized by the professor, then this must be a calculator. No cell phones, smart-phones or any electronic device of any sort will be permitted. In the case that a student has forgotten their calculator, they will be requested to do the calculations by hand or obtain one before the start time of the exam.

· Students may not leave the exam for any reason, should they insist of doing so they will not be allowed to return to the exam. Toilet issues should be addressed before the start of the exam; exams over 2 hours in duration, please leave your exam with the professor and ask to be escorted by an administration member to the bathroom.

· You may not leave the exam session during the last 15 minutes.

· Speaking is not allowed under any circumstances. Should a student be seen or heard communicating with another student, they will be disqualified for the session and awarded a zero for the exam.

· If a student is caught or suspected of cheating, he or she will be sent to the administration department immediately and a disciplinary file will be opened. Cheating of any kind will result in a 0 and no retake will be allowed.

· If formulas are allowed in the exam, only professors may give the necessary information to the student either by writing on the board or handing them directly to the students. Students may not use their own notes unless specified ahead of time.

LEARNING OUTCOMES ASSESSED

Outcome 1: Assessing the concept of DFNs

Outcome 2: Assessing the trade-off between the dividend policy and the liquidity constraints

Outcome 3: Assessing the trade-off between DFNs and the dividend policy

Outcome 4: Assessing different industries through their respective CCCs

Outcome 5: Assessing types of debt depending on the collateralization

Outcome 6: Understanding how to compute the DFNs

Outcome 7: Understanding how to compute the WC

INSTRUCTIONS

· Exam Structure: Two parts. Part 1: 5 Questions, both Knowledge and Critical Thinking, mainly theory. Material allowed: only biro or pencil. No calculators, neither laptops nor any other electronic devices, headphones included. Personal notes and materials are not allowed either.

· Time: A 1.5-hour part. Once time is over, the exam will be immediately delivered to the professor. Then, the second part of the exam will start.

· Part 2: 2 Mini-cases. Knowledge, practice. Material allowed: laptops. Excel will be the only application allowed. Students will have to download a template from the Moodle, solve it, and submitt it through the Turnitin submission point. A formula sheet will also be available in the Moodle for computing the requested operations. Time: a 1-hour part

· Total time for the exam: Part 1, 1.5 h + Part 2, 1 h = 2.5 hours

GRADING

· Part 1. (70%)

· Questions 1-5: Open questions 14% each question

· Part 2 (30%)

· Questions 6-7: Mini-cases 15% each

EXAM QUESTIONS:

Part 1.

Question 1

What are the discretionary financing needs? Explain the concept concisely and cite a brief example. You do not need, of course, to draw both the complete P&L and the BS for illustrating your explanation.

Question 2

Please describe the cash constraint when it comes to paying dividends over the accounting net income figure. Cite a brief example.

Question 3

After negotiating with an important customer, the CFO of Company H has just decided to stretch the credit period, from 30 to 45 days, instead of increasing the credit quantity because, according with his opinion, it will not have any impact on the financing needs of the firm. Do you agree? Justify your answer.

Question 4

Given the two cash conversion cycles, CCC1 = +90 days, and CCC2= -30 days, in which CCC would you frame an industrial company (B2B business) and an online e-commerce platform, such as Amazon, respectively?

Question 5

What is the difference between secured and unsecured debt? Cite an example

Part 2.

Question 6. Please, compute the DFN according with the financial statements below.

2020

15% Growth

2021

Sales

635.0

COGS

381.0

Gross margin

254.0

Other Exploit. Exp.

127.0

Amort. & Deprec.

50.8

EBIT

76.2

Interests

9.0

EBT

67.2

Taxes, 30%

20.2

Net Income

47.0

2020

2021

Cash + Near Cash Assets

19.5

Acc. Receivable

98.4

Inventories

133.2

CA

251.1

Fixed Assets

253.2

Acc. Depreciation

-88.6

Total Assets

415.7

Acc. Payable

152.9

Short-Term Debt

16.0

Long-Term Debt

79.8

Current Profit

47.0

Retained Earnings

50.0

Capital

70.0

Total Liabilities

415.7

DFN

Question 7. Please, compute the working capitals. You can use the two methods for verifying purposes.

Cash

1.2

4.6

Accounts Payable

Near-cash assets

3.5

2.1

Other Accounts Payable

Accounts Receivable

9.1

3.5

Taxes Due

Inventories

3.8

3.1

Short-Term Debt

Machinery

10.8

15.2

Long-Term Debt

Facilities

6.2

4.7

Equity

Accrued Deprec.

-1.4

Total Net Assets

33.2

33.2

Total Liabilities

WC =

WC =