College of Administrative and Financial Sciences

Assignment 1
Principles of Finance (FIN101)
Deadline for students: (3/1/2023@ 23:59)

Course Name: Principles of Finance Student’s Name:

Course Code: FIN101 Student’s ID Number:
Semester: 2nd CRN:
Academic Year: 1444/1445 H, Second Semester
For Instructor’s Use only
Instructor’s Name: Hajar AlEisa
Students’ Grade: Level of Marks:
1: Net Working Capital and Management of Working Capital

Current Assets Current Liabilities

Cash and Marketable Securities $100,000 Accounts payables $60,000
Inventory 2,501,500 Short-term notes payable 200,000
Accounts Receivables 5,500,000 Other Current Liabilities 100,000
Other Current Assets 212,800
Total Current Assets $8,314,30 Total Current Liabilities $360,000
0

Net Working Capital = Total Current Assets – Total Current Liabilities

= $8,314,300 - $360,000

= $7,954,300

Management of Working Capital

Every business requires working capital to run routine business activities and make

timely payments. A company with sufficient working capital means it is operating efficiently

and financially well in the short-term (Hawley, 2022). A manager manages working capital

by managing current assets, payables, and cash flows. The manager monitors current assets

and liabilities to maintain sufficient cash to meet short-term requirements. They apply

different inventory management tools to avoid excessive inventory because inventory in

excess leads to capital blockage. Shortage of inventory material leads to an opportunity loss

in sales. A company manager also tries to maintain short-term day sales outstanding and solid

cash collection to increase its current assets. A firm pays suppliers on time to build good

relationships with suppliers. Such relationships lead to quality products, good deals,

discounts, and eventually greater profitability. A firm also controls its outgoing expenses to

stop unnecessary cash outlay.

2: Future Value of Cost of Trip

Investment Value-Year One

Value of Investment after one year = Amount x (1+r) ^ n

 = 2,500 x (1+0.08) ^ 1 = 2,700

Cost of Trip after One year

Trip cost after a year = Amount x (1+r) ^ n

= 2,600 x (1+ 0.03) ^ 1

= 2,678

The investment value is higher than the trip cost. It appears that we do have enough money in

a year to pay for the trip cost.

3: Net Income of XYZ Company

XYZ Company
Income Statement
For The Year Ended 20XX
Revenues $870
Less: Cost of Goods Sold (350)
Gross Profit $520
Less: Depreciation Expense (40)
Income before interest and Tax $480
Less: Interest Expense (50)
Income Before Tax $430
Less: Income Tax Expenses (129)
Net Income $301

4: Common-Size Balance Sheet

ABC Company
Common Size Balance Sheet
Percentag Percentag
Assets Amount e Liabilities and Equity Amount e
Cash $50,000 9.85% Account Payable $20,800 4.10%
Account Receivable 55,000 10.84% Accrued expenses 40,000 7.88%
Inventories 300,500 59.21% Short-term Note Payable 9,700 1.91%
Total Current Assets $405,500 79.90% Current Liabilities $70,500 13.89%
Net Fixed Assets 102,000 20.10% Long-term debt 70,000 13.79%
Total liabilities 140,500 27.68%
Owner's equity 367,000 72.32%
$507,50
Total Assets $507,500 100.00% Total Liabilities and Equity 0 100.00%
5: Value of an Investment Today

Present Value of Investment = Amount x (1+i) ^ n

= 20,000 x (1+5%) ^ 10

=32,577.89

Interest Earned = Principal Amount x rate x Time

= 20,000 x 5% x 10

= 10,000

Interest on Interest earned = PV of Value - Initial Investment - Interest Earned

= 32,577.89 – 20,000 – 10,000

= 2,577.89

6: Present Value of Annuity

Present Value (Annuity due) =Payment per year + Payment per year*(1-((1+R) ^-(n-1)))/R

= 130000 + 130000 *((1-((1+7%) ^-(12-1)))/7%)

= 130,000 + 130,000 * 7.498674337

= 1,104,827.66

7: Principles of Accounting

International accounting bodies have issued a set of accounting standards that public

companies must follow when preparing their financial statements. The prime goal of these

accounting principles is to ensure consistency, completeness, and accuracy in financial

statements (Fernando, 2022). It also helps businesses predict their future based on historical

trends in sales and const. All corporations following the same principles help investors,

creditors, and the company management make informed decisions.

A: Consistency
 The consistency principles require firms to stick with one accounting method. A

corporation choosing accrual base accounting must follow the same method for all future

financial records. Consistency in accounting methods helps in accurate comparison of

performance in different years.

B: Matching Principle

The matching concept requires businesses to record the cost in the same revenue year.

It should record expenses and revenue in the same accounting period to show the cause-and-

effect connection between income and expenses.

C: Materiality

It requires firms to report all financial information that could affect financial

statements and business decisions. A corporation should record every transaction, even if the

impact is minor. The idea behind such principles is to give a comprehensive look at a

business.

D: Economic Entity Assumption

Accounting principles require a business to maintain separate financial records from

personal funds. The business records should record only business assets and obligations. It

should not report the assets and liabilities of the owner.

E: Full Disclosure

Lawsuits, incomplete transactions, and other business conditions may significantly

impact business performance. Hence, accounting principles require firms to disclose such

information in annual reports. They must include footnotes and supplementary information to

convey information related to such transactions.

 References

Fernando, J. (2022). GAAP: Understanding It and the 10 Key Principles. Retrieved from

Investopedia: https://www.investopedia.com/terms/g/gaap.asp

Hawley, J. (2022). The Importance of Working Capital Management. Retrieved from

Investopedia: https://www.investopedia.com/ask/answers/100715/why-working-

capital-management-important-company.asp