1. Read the textbook according to the questions. After understanding the questions, answer the questions in your own language. Don’t copy the sentences in the book.

2. The answer can only come from the textbook, there is no need to find additional information.

3. Do not change the format of the test paper without authorization, and write the answers in the designated places

4. Copying answers and information from the Internet is not allowed

Student Name: _____________________

Please read the following requirements carefully before start your assignment:

1. Each question is worth 10 points.

2. The purpose of the assignment is to help you get familiar with key concepts of finance and to

guide you to read the textbook before coming to class.

• You do not need to read all content of the textbook: you are only required to read enough

to answer questions of this assignment.

• The assignment asks you to “use your own words”—you need to read the textbook,

UNDERSTAND the concepts, and use your own words to answer questions.

• Your answers should be only based on the textbook, DO NOT use any other sources.

3. Please write all your answers after Type your answers below, Please do not change the

format of this assignment.

4. TWU considers it a serious offense when an individual attempts to gain unearned academic

credit. Please make sure you read and understand the TWU Academic Integrity discussed on

the course syllabus and course Moodle page.

– Your submission will be checked using TurnItIn where originality will be checked against

other students’ submissions and anything available on the Internet.

– Do not use AI tools – AI-generated content will be identified.

– I only look at the similarity of your answers to online content and submissions.

– It is possible you receive a high similarity number: I will ignore the similarity in the

“question” part and only look at your answers.

– Any submission that is deemed to contain plagiarized material will receive an “F” mark.

5. Absolutely NO late submission will be accepted.

6. Submit on Moodle “Pre-class Assignment”.

– Name your submission as A1_LastName_FirstName (e.g. A1_Liu_Chen)

– Your assignment grade will be deducted by 10% with a wrong file name.

-1-

Read Chapter 1 of the textbook and use your own words to answer the following questions.

When you read Chapter 1: please focus only on the definition of the financial statement

terms and the ratios. You do not need to worry about “The Unidentified Industries Game”.

1. Based on Chapter 1: Use your own words to explain the following items on the assets side of a

company’s balance sheet:

1) Marketable Securities (also called “short-term investment”)

2) Account receivables

3) Current assets

4) Property, plant, and equipment (PP&E)

Type your answers below:

2. Based on Chapter 1: Use your own words to explain the following items on the liabilities side

of a company’s balance sheet:

1) Account payables

2) Accrued items

3) Current liabilities

Type your answers below:

3. Based on Chapter 1: Use your own words to explain the differences of equity, debt, and total

assets

Type your answers below:

4. Based on Chapter 1: Use your own words to explain the following items on a company’s

income statement:

1) Cost of goods sold (also called “COGS”)

2) Selling, general, and administrative expenses (also called “SG&A”)

3) EBIT

Type your answers below:

5. A company has the following items for the fiscal year 2023:

– Cash = 2 million

– Marketable securities = 6 million

– Account receivables (A/R) = 1 million

– Inventories = 6 million

– Total current liabilities = 8 million

Calculate the company’s Current Ratio and Quick Ratio

Type your answers below – please show your calculation process:

-2-

6. A company has the following items for the fiscal year 2023:

– Revenue =10 million

– Cost of goods sold = 3 million

– EBIT = 4.5 million

– Net income = 3 million (also called net profit)

Calculate the company’s Net Profit Margin

Type your answers below – please show your calculation process:

7. A company has the following items for the fiscal year 2023:

– Revenue =10 million

– EBIT = 4.5 million

– Net income = 3 million

– Total Equity = 30 million

– Total Assets = 40 million

Calculate the company’s ROA and ROE

Type your answers below – please show your calculation process:

8. A company has the following items for the fiscal year 2023:

– Total Equity = 20 million

– Total Debt = 5 million

– Total Assets = 30 million

– EBIT = 4 million

– Interest expense = 1 million

Calculate the company’s ratios of Debt to Assets, Assets to Shareholders’ Equity and Interest

Coverage Ratio

Type your answers below – please show your calculation process:

9. Write the formula for the following ratios and what each ratio measures:

1) Inventory Turnover and Days Inventory

2) Receivable Collection Period

Type your answers below:

10. A company has the following items for the fiscal year 2023:

– Sales = 10 million

– Cost of goods sold = 6 million

– Inventory = 2 million

– Account Receivables = 1 million

– Account Payable = 2.5 million

Calculate the company’s ratios of Inventory Turnover, Days Inventory and Receivable

Collection Period

Type your answers below – please show your calculation process:

-3-

11. Write down the DuPont framework. How would you explain to your non-MBA non-Finance

friends about the DuPont framework and why it is important?

Type your answers below:

12. A company has the following items for the fiscal year 2023:

– Revenue = 10 million

– EBIT = 4 million

– Net income = 2 million

– Total Equity = 15 million

– Total Assets = 30 million

Calculate the company’s Net Profit Margin, Asset Turnover and ROE

Type your answers below – please show your calculation process:

Read Chapter 2 of the textbook and use your own words to answer the following questions.

When you read Chapter 2: You only need to read enough on pages 53-69 to finish my

questions below. I will spend a lot of class time talking about cash!

13. Based on Chapter 2:

1) Use your own words to explain Operating Cash Flows (OCF)

2) Use your own words to explain Free Cash Flows (FCF)

Type your answers below:

14. Read the section on the Cash Conversion Cycle (or “Cash Cycle”) and use your own words to

answer the questions:

1) Explain cash conversion cycle and why it is important to companies?

2) Is it possible that a company has a negative cash cycle? Is it a good thing or a bad thing?

Type your answers below:

15. A company has days of inventory 80 days, days receivable of 30 days, and days payable of 60

days. Calculate the company’s funding gap and interpret the number.

Type your answers below – please show your calculation process:

16. A company has days of inventory 30 days, days receivable of 30 days, and days payable of 90

days. Calculate the company’s cash cycle and interpret the number.

Type your answers below – please show your calculation process:

-4-

Read Chapter 4 of the textbook and use your own words to answer the following questions.

When you read Chapter 4: You only need to read enough to finish my questions below.

17. If the risk-free rate is 2%, the market risk premium (also called the equity risk premium) is 5%,

and a company has a beta of 1.5. What is the company’s cost of equity?

Type your answers below – Please first show the formula for CAPM and show your calculation

process:

18. Assume a company has 10 million of total assets: 60% of the total asset is from debt and 40%

is from equity. The company has a 12% cost of equity and a 7% cost of debt. The company has

a tax rate of 30%. What is the company’s weighted average cost of capital (WACC)?

Type your answers below – Please first show the formula for WACC and show your calculation

process:

Read Chapter 5 of the textbook and use your own words to answer the following questions.

When you read Chapter 5: You only need to read enough to finish my questions below.

19. Use your own words to answer the following questions:

1) Write the formula for the P/E ratio and what it measures?

2) Should you invest in a company with high P/E or low P/E? Why?

Type your answers below:

20. A company has the following items for the fiscal year 2023:

– Revenue = 20 million

– Net income = 5 million

– The company has 2 million shares of stock

– Stock price per share = $50

Calculate the company’s Earnings Per Share and P/E ratio

Type your answers below – please show your calculation process:

-5-

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