Answer the following Finance Questions;

**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:

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

b. 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.

Modern Appliances Corporation | |

Income Statement for the Fiscal | 31-Dec-11 |

Sales | 5,398,412,000 |

Cost of goods sold | 3,432,925,255 |

Gross profit margin | 1,965,486,745 |

Selling, general, and admin. expenses | 1,036,311,231 |

Depreciation | 299,928,155 |

Operating income | 629,247,359 |

Interest expense | 35,826,000 |

EBT | 593,421,359 |

Income taxes | 163,104,554 |

Net earnings | 430,316,805 |

Consolidated Balance Sheet Modern Appliances Corporation Balance Sheet as of December 31, 2011 | |||

Assets | Liabilities and Stockholders’ Equity | ||

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)

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