FAR EASTERN UNIVERSITY

Manila City

FINANCIAL MANAGEMENT
MIDTER EXAMINATION

Name: ____________________________________________ Date: ___________

(Surname) (First Name) (M.I.)
Score: /
Section: ____________________________________________

Instruction: Choose the BEST answer for each of the following items. Mark only one answer for each item on the
scantron sheet (a.k.a. bubble sheet). Strictly no erasures allowed. Talking to your classmate, looking at the paper of
your classmate and going out of the exam room is also prohibited. Detach the scratch paper in the last page of this
questionnaire, no other scratch paper is allowed. Submit the scratch paper together with the questionnaire and
scantron sheet after the exam.

PART 1 – THEORIES

1) The primary goal of the financial manager of a profit-seeking organization is to:

A. maximize market share C. increase sales and profit
B. maximize the owners’ wealth D. have healthy cash flow

2) Crucial elements of the financial environment and well-developed financial system include:
A. financial institutions C. investment and financial management
B. financial markets D. all of the above

3) Financial markets encourage investment by:

A. providing capital at lower rates than provided by banks
B. providing electronic execution of transactions which are faster and cheaper than other methods
C. providing the means for savers to easily and quickly convert financial assets into cash when needed
D. none of the above

4) The issuing of new securities, mortgages, and other claims to wealth takes place in the:
A. secondary market C. primary market
B. money market D. securities market

5) Financial markets are not necessary for productive capital formation.

A. True
B. False

6) Finance, generally, deals with:

(I) Money; (II) Markets; (III) People
A. I only C. I and III only
B. I and II only D. I, II and III

7) Businesses can be organized as

A. sole proprietorships C. corporations
B. partnerships D. any of the above

8) In finance, "short-term" means

A. less than one month C. less than one year
B. less than 270 days D. less than two years

9) The Chief Financial Officer (CFO) of a corporation oversees:

A. Treasurer's functions C. Both A and B
B. Controller's functions D. None of the above

10) The balance sheet is useful for analyzing all of the following except
A. liquidity. C. profitability.
B. solvency. D. financial flexibility.


11) When a balance sheet amount is related to an income statement amount in computing a ratio,
A. the income statement amount should be converted to an average for the year.
B. comparisons with industry ratios are not meaningful.
C. the balance sheet amount should be converted to an average for the year.
D. the ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-
the-year amount.

12) A major problem in comparing profitability measures among companies is the

A. lack of general agreement over which profitability measure is best.
B. differences in the size of the companies.
C. differences in the accounting methods used by the companies.
D. differences in the dividend policies of the companies.

13) The basic limitations associated with ratio analysis include

A. the lack of comparability among firms in a given industry.
B. the use of estimated items in accounting.
C. the use of historical costs in accounting.
D. all of these.

14) Which of the following is not revealed on a common size balance sheet?
A. The debt structure of a firm.
B. The capital structure of a firm.
C. The peso amount of assets and liabilities.
D. The distribution of assets in which funds are invested.

15) Horizontal, vertical, and common-size analyses are techniques that are used by analysts in understanding the
financial statements of companies. Which of the following is an example of vertical, common-size analysis?
A. Commission expense in 2021 is 10% greater than it was in 2020
B. A comparison of financial ratio from between two or more firms in the same industry.
C. A comparison in financial form between two or more firms in different industries.
D. Commission expense in 2020 is 5% of sales.

16) Balance sheet analysis is useful in assessing a firm's liquidity, which is the ability to
A. satisfy short-term obligations.
B. main profitable operations.
C. maintain past levels of preferred and common dividends.
D. survive a major economic downturn.

17) Which of the following ratios is (are) useful in assessing a company’s ability to meet currently maturing or short-term
obligations?
A. B. C. D.
Acid-Test Ratio No No Yes Yes
Debt-to-Equity Ratio No Yes Yes No

18) All of the following financial indicators are measures of liquidity and activity except the
A. average collection period in days. C. accounts receivable turnover.
B. merchandise inventory turnover. D. times-interest-earned ratio.

19) An increase in the total net sales, a decrease in cost of goods sold and a decrease in operating expenses per peso of
sales are indications of
A. operating efficiency. C. equity ratio.
B. operating ratio. D. operating effectiveness

20) A share dividend

A. increases the debt-to-equity ratio of a firm.
B. decreases future earnings per share.
C. decreases the size of the firm.
D. increases shareholders' wealth.

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21) An increase in the market price of a company's common stock will immediately affect its
A. dividend yield. C. earnings per share.
B. debt-to-equity ratio. D. dividend payout ratio.

22) When compared to a debt-to-assets ratio, a debt-to-equity ratio would

A. be about the same as the debt-to-assets ratio.
B. be higher than the debt-to-assets ratio.
C. be lower than the debt-to-assets ratio.
D. have no relationship at all to the debt-to-assets ratio.

23) The most common cash management technique used to speed up collections is:
A. Wire transfers C. In house processing
B. Lockboxes D. SWIFT

24) Accounts receivables include: (M)

I. Trade credit
II. Consumer credit
III. Inventories
A. I only C. III only
B. II only D. I and II only

25) If a firm sells goods on terms 2/30 net 60, customers who do not take the cash discount are effectively borrowing
money at approximately 2% per year.
A. True
B. False

26) The amount of long-term capital that is made to revolve in conducting operations and serves as the lifeblood of the
company
A. Paid-up capital C. Working capital
B. Net worth D. None of these

27) A lock-box system

A. Reduces the need for compensating balances.
B. Provides security for late night deposits.
C. Reduces the risk of having checks lost in the mail.
D. Accelerates the inflow of funds.

28) Which of the following actions would not be consistent with good management?
A. Increased synchronization of cash flows.
B. Minimize the use of float.
C. Maintaining an average cash balance equal to that required as a compensating balance or
that which minimizes total cost.
D. Use of checks and drafts in disbursing funds.

29) The following are desirable in cash management except:

A. Cash is collected at the earliest time possible.
B. Most sales are on cash basis and receivables are aged “current”
C. Post-dated checks are not deposited on time upon maturity.
D. All sales are properly receipted and promptly deposited intact.

30) The level of accounts receivable will most likely increase as

A. Cash sales increase and number of says sales.
B. Credit limits are expanded, credit sales increase, and credit terms remain the same.
C. Credit limits are expanded, cash sales increase, and aging of the receivables is improving.
D. Cash sales increase, current receivables ratio to past due increases, credit limits remain
the same.

FIN MAN by: Bernadette L. Baul, CPA Page 3 of 5



PART 2 – PROBLEMS

31) The current ratio of a firm with current assets of $300,000, current liabilities of $100,000, and inventory of $100,000
is:
a. 1:1 c. 3:1
b. 2:1 d. 4:1

32) The quick ratio of a firm with current assets of $300,000, current liabilities of $100,000 and inventory of $100,000 is:
a. 1:1 c. 3:1
b. 2:1 d. 4:1

33) Find the average payment period if accounts payable is $20,000, cost of goods sold is $200,000, and sales are
$500,000. Use 365 days.
a. 10 c. 25
b. 36.5 d. 14.6

34) If a firm’s sales are $2,000,000, its cost of goods sold is $1,500,000, and its total assets are $1,000,000, what is
total asset turnover?
a. 2.0 times c. 0.5 times
b. 1.5 times d. .67 times

35) If the total asset turnover of a firm is 1.5, total assets are $500,000, and net income is $50,000, what is the profit
margin?
a. 1% c. 6.7%
b. 5% d. not enough information available

36) Given the following financial data: net income/sales = 6%; sales/total assets = 3.5; debt/total assets = 30%. The
return on total assets is:
a. 15% c. 30%
b. 21% d. not enough information available

37) Given the following data: Earnings per share = $5; Dividends per share = $3; Price per share = $50. Calculate the
payout ratio:
A. 10% C. 60%
B. 5% D. None of the above

38) Given the following data: Earnings per share = $5; Dividends per share = $3; Price per share = $50. Calculate the
dividend yield: (E)
A. 10% C. 60%
B. 5% D. None of the above

Use the following information for the next two (2) questions:
Given the following data: Long term debt = 100; Value of leases = 20; Book value of equity = 80; Market value of equity
= 100,

39) Calculate the debt ratio.

A. 0.56 C. 0.55
B. 0.50 D. 0.60

40) Calculate the debt-equity ratio.

A. 0.50 C. 1.50
B. 0.60 D. 1.0

41) Assume that the average number of daily payments to a lock-box is 200, the average size of the payment is $1,000,
the rate of interest per day is 0.02% (i.e., 0.0002), the savings in mail time is 2 days, and the savings in processing
time is 1 day. What is the daily return from operating the lock-box?
A. $80 C. $120
B. $100 D. $130

FIN MAN by: Bernadette L. Baul, CPA Page 4 of 5



Use the following information for the next two (2) questions:
Given the following data: Sales = 3200; Cost of goods sold = 1600; Average total assets = 1600; Average inventory =
200,

42) Calculate the asset turnover ratio:

A. 2.0 C. 1.33
B. 0.9375 D. None of the above

43) Calculate the days in inventory:

A. 18.3 C. 22.8
B. 45.6 D. None of the above

44) A firm has an average age of inventory of 101 days, an average collection period of 49 days, and an average
payment period of 60 days. The firm's cash conversion cycle is
A. 150 days. C. 112 days.
B. 90 days. D. 8 days

45) A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an
average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10
days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and
clearing float. The firm's cash conversion cycle _____.
A. increases by 3 days C. will not change
B. decreases by 3 days D. is 93 days

46) On an average day, a company writes checks totaling $1,500. These checks take 7 days to clear. The company
receives checks totaling $1,800. These checks take 4 days to clear. The cost of debt is 9%. What is the firm's
disbursement float?
A. $10,500 C. $1,800
B. $1,500 D. None of the above

47) Assume that each day a company writes and receives checks totaling $10,000. If it takes 5 days for the checks to
clear and be deducted from the company's account, and only 4 days for the deposits to clear, what is the float?
A. $10,000 C. $(10,000)
B. $0 D. $50,000

48) What is the opportunity cost of keeping a cash balance of $2 million, if the daily interest rate is 0.02% and the
average transaction cost of investing money overnight is $50?
A. $50 C. $400
B. $350 D. $40,000

49) Edwards Manufacturing Corporation uses the standard Economic Order Quantity (EOQ) model. If the EOQ for
Product A is 200 units and Edwards maintains a 50-unit safety stock for the item, what is the average inventory of
Product A?
a. 250 units. c. 200 units.
b. 150 units. d. 100 units.

50) JASMIN Products, Inc. gathered the following information related to one of its materials:
Order quantity 1,500 units
Normal use per day 500 units
Maximum use per day 600 units
Minimum use per day 100 units
If the lead time is five days, the order point is
a. 500 units c. 2,500 units
b. 1,500 units d. 3,000 units

FIN MAN by: Bernadette L. Baul, CPA Page 5 of 5