All else

being
equal,
which of
the
following Stated Interest Rate or Contract Interest _____is the interest rate that determines the
amount of interest to be paid by the issuer and to
will Rate
be received by the bondholder each year.
increase a
company’s
current
ratio?

Yield to Maturity _____refers to the internal rate of return of bonds.

____is an evidence of a promise in writing under
seal to pay a definite sum of money with a fixed
[Bond Certificate]
rate of interest at a definite future date made by
one person to another.
An approach in purchasing another firm .
where the acquiring firm can have a
surprise takeover of the target firm
without communication the latter’s
management → Tender Offer, A kind of
divestiture which involves the separation
of a subsidiary from its parent company
without changing its equity ownership →
Spin-off, The most logical and reliable
tool in valuing a merger. → Net present
value or discounted cash flow, A tactic
to resist unfriendly mergers where the
target corporation may retaliate with a
tender offer to acquire the business of
the tender offeror. → Reverse tender, It
is the occurrence of a condition when
the whole is greater than the sum of the
parts as a resulting of eliminating
overlapping functions or resources in
the event of mergers or acquisitions. →
Synergy, “Company A + Company B =
Company A”   is an example of what
type of business combination? →
Merger, It is the kind of merger that
combines two companies producing
non-related products and has no
common market. → Conglomerate
merger, It is described as using
combined inputs from two firms to
produce multiple products. →
Economies of Scope, The kind of
payment scheme on mergers that use a
combination of securities to pay the new
shareholders of the acquiring company.
→ Debt and Preferred Shares
Financing, Another term for deferred
payment plan. → Earn-out
The kind of payment scheme on
mergers that use a combination of
securities to pay the new shareholders
of the acquiring company. → Debt and
Preferred Shares Financing, A tactic to
resist unfriendly mergers where the
target corporation may retaliate with a
tender offer to acquire the business of
the tender offeror. → Reverse tender,
An approach in purchasing another firm
where the acquiring firm can have a
surprise takeover of the target firm
without communication the latter’s
management → Tender Offer,
“Company A + Company B = Company
A”   is an example of what type of
business combination? → Merger, It is
described as using combined inputs
from two firms to produce multiple .
products. → Economies of Scope,
Another term for deferred payment plan.
→ Earn-out, A kind of divestiture which
involves the separation of a subsidiary
from its parent company without
changing its equity ownership → Spin-
off, The most logical and reliable tool in
valuing a merger. → Net present value
or discounted cash flow, It is the kind of
merger that combines two companies
producing non-related products and has
no common market. → Conglomerate
merger, It is the occurrence of a
condition when the whole is greater than
the sum of the parts as a resulting of
eliminating overlapping functions or
resources in the event of mergers or
acquisitions. → Synergy
A BC Corp.‘s proposed project  with an estimated
life of 20 years and salvage value of P100,000
11% requires an initial investment of P 1,000,000. It will
yield yearly cash inflow of P100, 000. Straight line
method will be used.
A BC Corp.‘s proposed project  with an estimated
life of 20 years and salvage value of P100,000
5.50% requires an initial investment of P 1,000,000. It will
yield yearly cash inflow of P100, 000. Straight line
method will be used.
0.055 A BC Corp.‘s proposed project with an estimated
life of 20 years and salvage value of P100,000
requires an initial investment of P 1,000,000. It will
yield yearly cash inflow of P100, 000. Straight line
 method will be used.
A BC Corp.‘s proposed project with an estimated
life of 20 years and salvage value of P100,000
0.11 requires an initial investment of P 1,000,000. It will
yield yearly cash inflow of P100, 000. Straight line
method will be used.
A company has a net investment of P500, 000 for
Rejected one of its project and an annual cash flow of P80,
000, estimated life of the project is 5 years.
A company has a net investment of P500, 000 for
6.25 years one of its project and an annual cash flow of P80,
000, estimated life of the project is 5 years.
A company has a net investment of P500, 000 for
0.16 one of its project and an annual cash flow of P80,
000, estimated life of the project is 5 years.
A company is planning to invest in new machinery
with a purchase price of P1, 300,000. Installation
cost is P200, 000. The new machine will contribute
to the cash inflow of P500, 000 annually.  The
P461,590
machine has an estimated useful life of 10 years,
no salvage value. The company is expecting a
22% return on all of its investment. The present
value rate is 4.49409.
A company is planning to invest in new machinery
with a purchase price of P1, 300,000. Installation
cost is P200, 000. The new machine will contribute
The correct answers are: P1,500,000, to the cash inflow of P500, 000 annually.  The
P2,000,000 machine has an estimated useful life of 10 years,
no salvage value. The company is expecting a
22% return on all of its investment. The present
value rate is 4.49409.
A company is planning to invest in new machinery
with a purchase price of P1, 300,000. Installation
cost is P200, 000. The new machine will contribute
to the cash inflow of P500, 000 annually. The
P1,500,000, P2,000,000
machine has an estimated useful life of 10 years,
no salvage value. The company is expecting a
22% return on all of its investment. The present
value rate is 4.49409.
A company is planning to invest in new machinery
with a purchase price of P1, 300,000. Installation
cost is P200, 000. The new machine will contribute
to the cash inflow of P500, 000 annually. The
P461,590
machine has an estimated useful life of 10 years,
no salvage value. The company is expecting a
22% return on all of its investment. The present
value rate is 4.49409.
A company issued a 15-year bonds with par value
of P1,000 each bond. The coupon rate is 14%.
140 The investors’ required rate of return is 10%.
Required: Compute for the interest that the
company pays annually on each bond.
 A company issued a bond currently selling at
P4,800 with an annual interest payment of 12%
12.5
and P 5,000 par value. What is the bond’s current
yield?
A company issued a bond currently selling at
P4,800 with an annual interest payment of 12%
12.50%
and P 5,000 par value. What is the bond’s current
yield?
A company’s ordinary share sells at P 35 and has
an expected annual dividend of P1.60. Expected
future dividend growth rate is 5% per year. Its
12.40%
current risk free rate is 4% and the expected return
on the market is 10%. The share has a beta of 1.4.
What is the cost of equity?
15% A corporation is issuing 10% common stock
A corporation is issuing 10% common stock that
should be sold for Php 15 each. The business will
16.54%
incur flotation costs of Php 2 per share. With
growth rate of 5% What is the cost of capital?
A firm has a profit margin of 15 percent on sales of
13.30% 20,000,000. If the firm has debt of 7,500,000 and
total assets of 22,500,000 what is the firm’s ROA?
A new process will be applied by ABC Corporation
in manufacturing their products. Based on their
study, the new process will yield savings on raw
152,600 materials of P 150,000 per year; in labor by P
40,000, and in factory overhead by P25,000. The
company’s depreciation will increase by P20,000.
Corporate tax rate is 32%.
A No ____lease agreement gives the lessee a
[Operating Lease]
limited right to use the asset.
A portfolio beta of greater than 1 indicates greater
TRUE instability and less than 1 beta means less
volatility.
A positive net present value would mean that the
TRUE
investment proposal should be accepted.
A project proposal with a 5 years life requires a
How much is the net investment cash new capital equipment worth P 2,000,000. It also
flow? 2,100,000 requires an additional initial investment of
How much is the depreciable value of P250,000, 60% of which is financed by trade
the equipment? 2,000,000 credit. The new equipment has a useful life of 5
How much is the annual depreciation of years, no salvage value and will be depreciated
the equipment? 400,000 per year using the straight line method. The new equipment
How much is the operating cash flow for will result to an annual increase in sales of
the first year? 434,000 P800,000; increase in operating expenses of P
350,000 per year. Income tax rate is 32%.
A security is undervalued if it is plotted below the
FALSE
Security Market Line.
110 ABC Corporation has an outstanding preferred
share in which it pays an annual cash dividend of
P14.30. The shareholders’ required rate of return
on preferred shares is 13%. How much is the
 intrinsic value of the preferred share?
How much is the initial investment ABC Corporation is considering buying a new plant
outlay? 13,500,000 for its expansion program. The plant costs P
How much is the depreciable value of 10,000,000 and would require additional P
the plant? 10,000,000 3,500,000 investment in operating working capital.
ABC Corporation’s beta is 1.6; the current rate of
0.02 return on securities is 12%, estimated return of
market portfolio yields 14%.
ABC Corporation’s beta is 1.6; the current rate of
0.152 return on securities is 12%, estimated return of
market portfolio yields14%.
ABC has been paying P2.60 in annual dividends
on its ordinary equity share and expects to
maintain this amount indefinitely. The investor’s
20 per share
required rate of return on this share is 13%.
How much will the investor be willing to pay for a
share?
ABS Corporation pays ordinary shareholders P 6
cash dividend at the end of every year indefinitely
50 into the future. The ordinary shareholders’ required
rate of return is 12%. What is the value of the
ordinary share?
According to the Capital Asset Pricing Model, a
Market risk well-diversified portfolio's rate of return is a
function of
According to this approach, the mix of debt and
equity capital can increase the value of the firm by
Traditional Approach
reducing overall cost of capital up to certain level
of debt.
Accounts Payables and Accruals are provided by
suppliers and workers as part of the normal
TRUE
operations and are not included in the category of
capital.
All else being equal, which of the following will
An increase in accounts receivable.
increase a company’s current ratio?
Amazona company wants to increase its debt to
Make a loan total assets ratio, which of the following activities
could make this possible?
An increase in which of the following is likely to
Both a and b.
increase a firm's ability to pay dividends?
An international bond guaranteed by an
Eurobond
international consortium of banks.
Analyze the given choices and identify which one
Retained Earnings is not included when these finances will be
classified on the basis of source of generation.
Asset liquidity pertains to an easy conversion of
company’s assets into cash in the event of
TRUE
unexpected substantial need for additional cash
flow.
Systematic Risk Beta
TRUE Beta coefficient is a measure of volatility.
[Debt Financing] Borrowed capital is also called _______.
Business Risk is the possibility that shareholders
will lose their investment in a company with debt, if
FALSE
the cash flows will not be sufficient to meet its
financial obligations.
Calculate the after tax cost of the bond issue.
7.11
(Relate to the given in the question above)
Calculate the before tax cost of the bond issue,
10.45 assuming a coupon rate of 9.5%(use trial and error
at 10%)
Calculating the weighted average cost of capital is
FALSE the most widely used method of approximating the
cost of ordinary shares.
Capital asset pricing model calculates the
TRUE expected return on asset based on its beta and the
expected market return.
Capital asset pricing model calculates the
TRUE expected return on asset based on its beta and the
expected market return.
Capital budgeting refers to a budgeting for the
TRUE acquisition of assets that will be used for a long
period of time and are considered as investments.
Capital budgeting refers to a budgeting for the
TRUE acquisition of assets that will be used for a long
period of time and are considered as investments.
Capital components include bonds, preferred
FALSE
shares, ordinary shares, and retained earnings.
Company A’s ROE is 20 percent, while Company
Company A and Company B have equal
B’s ROE is 15 percent. Which of the following
amount of Equity.
statements can be true?
Contemporary approach to capital structure
TRUE asserts that there is an optimal capital structure for
every firm.
Current assets divided by current liabilities is the
Current ratio
definition of the:
Debenture bonds are bonds backed up by ____-of
Good Faith
the bond issuer.
Decision-making under means that for each
certainty decision action there is only one event and only a
single outcome for each action.
Decision-making under means that for each
certainty decision action there is only one event and only a
single outcome for each action.
Declaration of stock dividends will change the total
FALSE
stockholders' equity.
Developing a new product is an example of a
FALSE
preference capital investment decision.
Range of a probability distribution Difference between the highest and the lowest
 possible outcome.
Board of Directors Dividend policy are finally approved by the
Dividends should not be made out of the capital of
Capital impairment rule
the firm is what legal requirements rule?
Drag the answer corresponding to the statements
The correct answer is:
below to the box allocated for each statement.
____ is the rate at which a project
proposal is expected to generate a
return during its useful life. [Internal rate
of return]
The investment appraisal method that
divides the present value of future cash
flows of a project by its required initial
investment is ___. [Profitability Index]
Bail-out period is a capital budgeting
approach that considers _____ in
Drag the answer corresponding to the statements
payback computation. [Salvage value]
below to the box allocated for each statement.
___determine the rate of recovery of
investment during the payback period.
[Payback reciprocal]
Net present value is the difference
between the present value of cash
inflows and the present value of ____.
[Cash outflows]
Capital ____is putting ceilings on the
amount of new investment projects.
[Rationing]
Drag the word/phrase that corresponds to the
statements below.Answers can be used more than
once
Drag the word/phrase that corresponds to the
The correct answer is: statements below.Answers can be used more than
once
Earnings per share are zero at financial break-
TRUE
even point.
Examples of this outlay are the purchase of fixed
assets such as land and building, plant and
Fixed capital machinery, expenses relating to improvement or
renovation these fixed assets and costs incurred
for the research and development projects
Fama’s French Bakery has a return on assets
(ROA) of 10 percent and a return on equity (ROE)
140,000
of 14 percent. If equity is equal to 100,000.  What
is the value of total assets?
Financial break-even point is the earnings before
interest and taxes level at which after paying
TRUE interest on bonds, dividends on preferred shares,
and income taxes, nothing is left for ordinary equity
shareholders.
FLP Company has  1000 existing common
1.11%
shares.  The market value of the share is
Miller Following are the proponents of the Dividend
 Relevance theories except
FPL Co has current assets of 180,000 (cash:
20,000, accounts receivable: 70,000, inventory:
90,000), and long-term assets that had an amount
1.25 of 400,000, exclusive of accumulated depreciation
worth 180,000. Sales were 500,000, and operating
profit was 50,000. Tax was 20,000 and interest
paid was 10,000. Their total asset turnover ratio is:
FPL Co has sales of 500,000, net operating profit
of 50,000, interest expense of 10,000, tax expense
ROA is lower than ROE of 20,000, total equity of 125,000 and total debt of
275,000. Their return on equity in comparison to
their return on assets is:
FPL Co has sales of 500,000, operating profit of
50,000, interest expense of 10,000, tax expense of
68.75%
20,000, total equity of 125,000 and total debt of
275,000. Their debt to assets ratio is:
FPL Co has sales of 500,000, operating profit of
50,000, interest expense of 10,000, tax expense of
12.50%
20,000, total equity of 125,000 and total debt of
275,000. Their return on assets is:
FPL Co. Statement of Financial Position has Total
Assets worth 100,000 wherein 60,000 is non-
current.  It also has Total Liabilities worth 200,000
wherein 80,000 is non-current.  It was found out
0.41
that there was an unrecorded depreciation worth
20,000 and unrecorded purchase of merchandise
on account worth 15,000.  What is the current
ratio?
FPL Company has a gross working capital of
100,000 and the company has 200,000 total
50,000
liabilities of which 150,000 are long term debts.
What is the net capital?
FPL Company has a gross working capital of
100,000 and the company has 200,000 total
100,000
liabilities of which 150,000 are long term debts.
What is the total current assets?
FPL Company has a net working capital of
100,000 and the company has 200,000 total
150,000
liabilities of which 150,000 are long term debts.
What is the gross capital?
FPL Company has a total Assets worth 400,000 of
which 250,000 are non current the company also
150,000 has 200,000 total liabilities of which 150,000 are
long term debts. What is the gross working
capital?
FPL Company has a total Assets worth 400,000 of
which 250,000 are non current the company also
100,000
has 200,000 total liabilities of which 150,000 are
long term debts. What is the net working capital?
1.67 FPL Company has cash and cash equivalents
worth 10,000; equipment worth 20,000; accounts
 receivable worth 15,000; notes receivable worth
12,000 ; accounts payable worth 10,000 and notes
payable worth 5,000 maturing after one month.
What is the current ratio?
FPL company has machineries and equipment
worth 150,000, land and building for business
1,000,000, Cash 150,000, Inventories 30,000 and
Php 230,000
accounts receivables 50,000. He also owes
200,000 to a bank. How much is the gross working
capital?
FPL Company has total assets worth 400,000 of
which 250,000 are non current. The company also
3
has 200,000 total liabilities of which 150,000 are
long term debts. What is the current ratio?
FPL Company owes Php20,000 to supplier A,
Php30,000 to Supplier B, 50,000 to Supplier C and
a long term bonds payable 10,000. After struggling
in its operations, the company ended up having
none of these
Php20,000 cash on hand, Php30,000 worth
inventories, Php40,000 Accounts receivable and
equipment worth Php50,000. What is the net
working capital?
FPL Company owes Php20,000 to supplier A,
Php30,000 to Supplier B, 50,000 to Supplier C and
long term bonds payable for 10,000.  After
struggling in its operations, the company ended up
0.9
having Php20,000 cash on hand, Php30,000 worth
of inventories, Php40,000 accounts receivable and
equipment worth Php50,000.  What is the current
ratio?
FPL Company owes Php20,000 to supplier A,
Php30,000 to Supplier B, 50,000 to Supplier C and
long term bonds payable for 10,000.  After
struggling in its operations, the company ended up
0.78
having Php20,000 cash on hand, Php30,000 worth
of inventories, Php40,000 accounts receivable and
equipment worth Php50,000.  What is the debt to
asset ratio?
FPL Company owes Php20,000 to supplier A,
Php30,000 to Supplier B, 50,000 to Supplier C and
long-term bonds payable for 10,000.  After
struggling in its operations, the company ended up
0.2
having Php20,000 cash on hand, Php30,000 worth
of inventories, Php40,000 accounts receivable and
equipment worth Php50,000.  What is the long-
term debt to long-term asset ratio?
FPL Company's average profit is 1,000,000 and
2.22 his average investment is 450,000. What is the
Accounting rate of return?
FPL Company's average profit is 150,000. What is
27,272.73 the average investment if accounting rate of return
is 5.5?
0.7586 Given the following exchange rates: US$ to Swiss
 franc = 1.0066; US$ to Canadian $ = 1.3269. the
Swiss Franc-Canadian $ exchange rate is
Historical costs have no effect on the future capital
TRUE
investment options.
22.16 How much is the after tax cost of new bond?
How much is the net proceeds from the sale of
920
bond?
Identify the function being described: The board of
directors and finance manager decided to offer
Acquiring necessary capital
stocks to the public so that they can have the
resources for business expansion.
Identify what is being described.  The company
had a net profit after taxes worth Php 1,000,000.
The board and the management decided not to
Increasing the value of the firm
distribute dividends to shareholders instead, it
retained its earnings for the year so that the
business can have resources for future use.
If the conditional probability of each event equals
independent
its unconditional probability, the two events are .
If the current ratio is equal to 2, and current
200
liabilities is 100, how much is the current assets?
If the optimistic scenario has a high positive net
present value and it seems to be difficult to
TRUE assume that it can certainly happen, it is safer to
choose the most likely scenario that has a lesser
positive net present value.
If you have a financial source that is required to be
Medium-term source
paid within four years, you have a
If you have a financial source that is required to be
Long-term source
paid within ten years, this describes
In calculating the weighted average cost of capital,
[Debt] ____is the capital component that has a tax
adjustment .
In computing the weighted average cost of capital,
the firm uses ____weights to establish proportions
[Target ]
on the basis of optimal capital structure the firm
wants to achieve.
In general, if the level of investment risk increases
TRUE
the possible returns on investment also goes up.
In graphing the security market line, the risk is
plotted on the x-axis and the expected return on
TRUE
the y-axis and from the SML slope, the market risk
premium is defined.
In probability of two events, if one event will occur
Conditional probability given that the other has occurred already , it is
termed
Capital Rationing In this decision type of decision making, there are
more than one proposal to be chosen however the
firm has limited funds so that’s why they must
ration these project proposals. Usually, they select
 a group of projects that yield the highest total
return given such limited funds.
In this financial statement analysis method, all
figures are expressed as percentages of an
Common Size Analysis important item such as total assets in the
statement of financial position and net sales in
income statement
In this type of analysis you may compare figures
from several years, so you are comparing the
horizontal analysis
amounts in each account from the past up to the
present.
In this type of financing, the business entity which
Internal financing has already operated may get funds internally from
depreciation funds and retained earnings.
Developing a new product Independent capital investment decision
Individual securities are plotted in the SML and if a
security is plotted below the SML, it is overvalued
TRUE
and the investor should expect a lower return for
the assumed risk.
Installation costs Initial cash outflow
inputs in simulation process that includes the
Probabilistic circumstances beyond the control of the decision-
makers.
Investments in security A with a beta of 1.6 and in
1.15 security B with a beta of 0.7 was made on a 50:50
basis. The portfolio beta is
Decision Tree Analysis is a
It is a graphical representation of possible
Decision Tree
solutions to a decision based on certain conditions.
Gordon/Lintner model It is also called the Bird-in-the hand theory.
Purchasing Power Parity It is also called the law of one price.
It is an investment with a return that is not
Risky financial asset
warranted.
It is contractual agreement between the owner of
lease the assets and user of the assets for a specific
period by a periodical rent.
It is the amount that a firm is willing to pay in
Expected Value of perfect information exchange for the errorless advice from a market
analyst.
It is the arrangement of probabilities related with
Discrete Probability Distribution the values of a variable that can assume a limited
or determinate number of outcomes.
probability It is the possibility that an event will happen.
It is the price of a nation's currency in terms of
Exchange rate
another currency.
It is the simultaneous buying and selling of an
Arbitrage
asset to profit from a difference in the price.
It is the standard measure of the risk per unit of
Coefficient of Variation
return.
 It is the variability of returns of the portfolio as a
Portfolio risk
whole.
It means apportioning with a third party the burden
Sharing the risk
of loss or benefits from risk.
Its objective is to provide information about the
financial position and the financial performance
Financial Statements
and cash flows of an entity that is useful to a wide
range of users in making economic decisions
Lancaster Co. and York Co. have the same value
Lancaster Co.'s ROA will be lower than of return on assets (ROA).  What will happen if
York Co. Lancaster Co. adjusts its accounting records for
the disposal of unusable equipment at a loss?
Listing of possible events and their assigned
Probability distribution
probability.
Lone Star Plastics has the following data:Gross
3,600 Sales 100,000Gross profit margin 6.0% Tax rate
40%What is Lone Star’s net income after taxes?
Market value weights are historical weights used in
computing the weighted average cost of capital
FALSE that determined the actual proportion of each kind
of permanent capital in the structure based on the
values given in the Balance Sheet.
Independent capital investment decision
→ Developing a new product,
Preference capital investment decision
→ Renting or owning a facility, Initial
Match the word/s in the right column with
cash outflow → Installation costs,
statements on the left.
Sustained increase in the price level of
nearly all commodities → Inflation, Beta
→ Systematic Risk, Simpliest frm of
‘what if” analysis → Scenario analysis
Initial cash outflow → Installation costs,
Independent capital investment decision
→ Developing a new product, Simpliest
frm of ‘what if” analysis → Scenario
Match the word/s in the right column with
analysis, Preference capital investment
statements on the left.
decision → Renting or owning a facility,
Sustained increase in the price level of
nearly all commodities → Inflation, Beta
→ Systematic Risk
It is the occurrence of a condition when Match the word/s in the right column with
the whole is greater than the sum of the statements on the left.
parts as a resulting of eliminating
overlapping functions or resources in
the event of mergers or acquisitions. →
Synergy, The kind of payment scheme
on mergers that use a combination of
securities to pay the new shareholders
of the acquiring company. → Debt and
Preferred Shares Financing, A kind of
divestiture which involves the separation
of a subsidiary from its parent company
without changing its equity ownership →
Spin-off, It is described as using
combined inputs from two firms to
produce multiple products. →
Economies of Scope, “Company A +
Company B = Company A”   is an
example of what type of business
combination? → Merger, The most
logical and reliable tool in valuing a
merger. → Net present value or
discounted cash flow, A tactic to resist
unfriendly mergers where the target
corporation may retaliate with a tender
offer to acquire the business of the
tender offeror. → Reverse tender, It is
the kind of merger that combines two
companies producing non-related
products and has no common market.
→ Conglomerate merger, An approach
in purchasing another firm where the
acquiring firm can have a surprise
takeover of the target firm without
communication the latter’s management
→ Tender Offer, Another term for
deferred payment plan. → Earn-out
Initial cash outflow → Installation costs,
Preference capital investment decision
→ Renting or owning a facility, Simpliest
frm of ‘what if” analysis → Scenario
Match the word/s in the right column with
analysis, Independent capital
statements on the left.
investment decision → Developing a
new product, Sustained increase in the
price level of nearly all commodities →
Inflation, Beta → Systematic Risk
Beta → Systematic Risk, Simpliest frm
of ‘what if” analysis → Scenario
analysis, Preference capital investment
decision → Renting or owning a facility,
Match the word/s in the right column with
Sustained increase in the price level of
statements on the left.
nearly all commodities → Inflation, Initial
cash outflow → Installation costs,
Independent capital investment decision
→ Developing a new product
Beta → Systematic Risk, Sustained
increase in the price level of nearly all
commodities → Inflation, Simpliest frm
of ‘what if” analysis → Scenario
Match the word/s in the right column with
analysis, Preference capital investment
statements on the left.
decision → Renting or owning a facility,
Independent capital investment decision
→ Developing a new product, Initial
cash outflow → Installation costs
Independent capital investment decision Match the word/s in the right column with
→ Developing a new product, Simpliest statements on the left.
frm of ‘what if” analysis → Scenario
analysis, Beta → Systematic Risk, Initial
cash outflow → Installation costs,
Sustained increase in the price level of
nearly all commodities → Inflation,
Preference capital investment decision
→ Renting or owning a facility
Minden Co has current assets that consist of cash:
20,000, receivables: 70,000 and inventory: 90,000.
adequately liquid
Current liabilities are 75,000. On the basis of the
current ratio and the quick ratio, Minden Co is:
Minden Co has current assets that consist of cash:
1.2 20,000, receivables: 70,000 and inventory: 90,000.
Current liabilities are 75,000. The quick ratio is
Minden Co has current assets that consist of cash:
Php20,000, receivables: Php70,000 and inventory:
2.4
Php90,000. Current liabilities are Php75,000. The
current ratio is:
Mutually exclusive project decision are contending
proposals that will give the firm positive benefits
TRUE
and accepting one or a combination of such
projects might disregard others for consideration.
On June 30, 2016, ABC Company entered into a
lease agreement for an office building for 30 years
with an annual lease payment of P200,000. On
1,604,320
July 1, 2016, the present value of the lease
payments at 12% interest is P1,611,000. How
much is the lease liability as of June 30,2017?
One of the basic principles of risk management
FALSE identified by ISO is that it should be used to handle
certainty.
One variable change on many values is allowed in
TRUE
simulation analysis.
Payment of cash dividend will reduce the retained
TRUE earnings at the same time will lower the company's
most liquid asset.
PFL Co has sales of 500,000, operating profit of
50,000, interest expense of 10,000, tax expense of
16%
20,000, total equity of 125,000 and total debt of
275,000. Their return on equity is:
Renting or owning a facility Preference capital investment decision
Preferred shares are also rated like bonds that is
TRUE why, some investors consider them to be more like
debt than equity.
Preferred shares has the right to receive assets of
[Ordinary shares ] the company before ______shares in the event of
liquidation.
Preferred shares have the right to receive assets
Liquidation of the company before ordinary shares is the event
of the firm’s ______.
Probability distribution based on past results of
Objective probability distribution
similar events.
 Profitability index is used in ranking investment
FALSE
projects is an ascending order of desirability.
Ratios that measure the ability of the company to
liquidity ratios
pay its short-term debts are called:
Relative to number 4 above, the Canadian$ -Swiss
1.3182
Franc exchange rate is
Retained earnings are portion of the corporation's
TRUE earnings not paid out as dividends but kept for
possible reinvestment.
net income and equity Return on equity is directly affected by
Return on sales, return on assets and return on
profitability ratios
equity are examples of
a) Interest on bonds payment - 75,000 RST Corporation ‘s EBIT for 2016 amounted to
b) Corporate income taxes - 64,000 P200,000. The company’scapital structure consists
c) Dividends on preferred shares - of 100, 15%, P5,000par value bonds; 1,00012%
12,000 preferred shares, P100 par value; and 2,000 P50
d) Dividends on ordinary shares - ordinary shares, P50 par value. Retained Earnings
24,600 account has a balance of P 125,000 as of
e) Balance of Retained Earnings December 31, 2016. Forty percent of earnings
Account as of December 31, 2016 - after interest and taxes (corporate tax rate - 32%)
149,400 will be retained in the business.
Selzer Inc. has a net profit after taxes worth
62,195.  It has a total assets worth 3 million, with a
3.40%
debt-to-equity ratio of 0.64. What is the firm’s
return on equity (ROE)?
Sexy Corporation’s current ratio is 0.5, while Coke
Company’s current ratio is 1.5. Both firms want to
“window dress” their coming end-of-year financial
statements. As part of its window dressing
Only Sexy Corporation’s current ratio
strategy, each firm will double its current liabilities
will be increased.
by adding short-term debt and placing the funds
obtained in the cash account. Which of the
statements below best describes the actual results
of these transactions?
Shepherd Enterprises has a debt-to-equity ratio of
40 percent.  The company’s total assets is equal to
Php 228,571,429
Php 800 million. What is the value of the
company's total liabilities?
Scenario analysis Simpliest frm of ‘what if” analysis
All of the above Sovereign Risks include
Stennett Corp.’s CFO has proposed that the
company made a new debt and used the proceeds
Return on Assets (ROA) will decline.
to buy equipment. Which of the following is likely to
occur if this proposal is adopted?
TRUE Stock repurchase pertains to treasury shares.
Increase the total market value of the
Stock split resulted to the following except
equity
Stock split will lower the par value of outstanding
TRUE
equity shares.
Inflation Sustained increase in the price level of nearly all
 commodities
The capital components consist of debt, preferred
[Ordinary shares]
shares, and ________.
The CAPM describes the relationship between the
FALSE unsystematic risk and the expected return for
assets.
The contemporary approach to capital structure
TRUE management recognizes tax effects, bankruptcy
costs and agency cost.
The cost of ___ is the minimum rate of return
[Debt]
required by the bondholder.
The cost of capital includes interests on bonds and
TRUE
dividends on shares.
The cost of current ordinary shares and retained
earnings are the same but the cost of the new
TRUE
ordinary shares and retained earnings are not
equal.
The cost of new ordinary equity is similar to
[Retained Earnings]
_______ but it is not equal.
The current assets and current liabilities of FPL
company is 25 and 25 respectively.  Reviewing the
past transactions the company purchased
merchandise worth 5 and it was immediately paid.
1
However, it was discovered that this transaction
was mistakenly recorded as a purchase on
account.  After adjusting the errors, what is the the
current ratio?
The date the company distributes its dividend
Payment Date
checks to the shareholders on record.
The date the company distributes its dividend
Payment Date
checks to the shareholders on record.
The decision-makers that requires higher rate of
Risk-averse investors
return on higher risk investment.
The difference between the present value of cash
Net Present Value
inflows and the present value of cash outflows.
The difference between the selling price and the
Contribution Margin
variable cost is called
The dividend valuation model that assumes that an
[Infinite Period Dividend Valuation
investor will buy equity shares and hold it
Model]
indeterminately is called ________.
a) Dividends to continue growing at a
The dividends of ordinary shares of LMN
constant rate of 10%. 5280
Corporation have been experiencing an annual
b) Dividend growth rate is anticipated to
growth rate of 10%. The present dividend per
decrease by 1.5% and to remain
share is P 1.20. The investor is requiring a 15%
constant at that level. 4006
rate of return. Required: Calculate the current
c) Dividend growth rate is expected to
value of LMN’s 200 ordinary shares under each of
increase to 12.5% and to remain
the following independent conditions.
constant at that level. 10800
The excess of bond’s issue price over its par value
[Bond Premium]
is called _____.
 The exchange rate at which a party to a contract
Forward exchange rate agrees to receive or deliver a currency at some
future date is
The exchange rate in the spot exchange market
Indirect Quote
that is also called quantity quotation.
The expected return - beta relationship of the
Security market line.
CAPM is graphically represented by the
The expected return-beta relationship of the CAPM
FALSE
is represented by a Capital market line.
The financial manager finds ways on how to obtain
Acquiring necessary capital
various capitalization for the business
The financial manager must estimate, how much
finances required to acquire fixed assets and
Forecasting Financial Requirements
forecast the amount needed to meet the working
capital requirements in future. This describes
The fixed exchange rate system requires all
United States Dollar countries to set an exact parity system vis-a-vis
the
The following are given for the two stocks of XYZ
0.14
Co.
The following are given for the two stocks of XYZ
0.184
Co.
It is the weighted sum of all individual The following statements regarding beta coefficient
asset betas. are true except
The Merriam Company has determined that its
return on equity is 15 percent. Management is
interested in the various components that went into
97,500
this calculation. You are given the following
information: (total debt)/(total assets) = 0.35 and
total assets = 1,000,000. What is the net income?
The Modigliani and Miller (MM) approach to capital
structure with corporate taxes states that the use
FALSE of financial leverage lowers the company’s cost of
capital and raises the firm’s value because interest
in debt is not tax deductible.
The net present value method is one popular
TRUE capital budgeting models wherein the cash flows
are discounted at the company's cost of capital.
The objective of having a good
_____________________ is to maximize the
Capital structure
value of the firm and minimize the overall cost of
capital.
The optimal capital structure is the combination of
debt and equity that maximizes the firm's market
TRUE
value and minimizes its weighted average cost of
capital at the same time.
The ordinary equity share valuation model that
Gordon constant Growth Model assumes that dividends grow at a constant rate
each period is the _____.
60 days The payable turnover is equal to 6, what is the
 average payment period?
The payable turnover is equal to 60, what is the
6 days
average payment period?
The planning committee approves the proposals,
Final Approval with the help of profitability, economic constituents,
financial volatility and market conditions.
current assets less inventory, less
prepaid expenses. The resulting amount The quick ratio is defined as:
will then be divided by current liabilities
sales divided by receivables The receivables turnover ratio is defined as
The risk that securities cannot be converted
Liquidity risk
quickly to cash is called
The line that represents the expected
The Security Market Line (SML) is
return-beta relationship
The traditional approach to capital structure
proposes that a firm can lower its weighted
FALSE
average cost of capital and decrease its market
value with the use of financial leverage.
The weighted average of an expected return from
Expected portfolio return
individual assets in the portfolio.
There is no direct cost associated with retained
TRUE
earnings.
These are funds that are required to purchase
Fixed Capital fixed assets such as land, building, plant,
machinery, furniture and fixtures.
These are goods which have not yet been
Raw materials committed to production in a manufacturing
business concern
These are policies that provide the framework to
Credit Policies determine whether or not to extend credit to a
customer and how much credit to extend.
These are source of finances are those which are
Long-term
required for a period of more than five years.
These are sources of finances which have a
Short-term required of payment for a period not exceeding
one year.
These funds are obtained from banks and credit
borrowed funds
unions
These proposals are those that compete with
Mutually Exclusive other. Therefore, the acceptance of one proposal
will exclude the acceptance of the other proposals.
These shares represent the ownership of a
company and thus the capital raised by issue of
equity shares
such shares is known as ownership capital or
owner’s funds.
They are the decision makers who are willing to
Risk-takers investors pay more than the expected value of an
investment.
Special Finance This is an industry for borrowers with a limited or
 tainted credit history.
This analysis is usually used to understand
Internal Analysis operational performance of the entity to help in
making their business decisions.
This determines the amount of profit to be
distributed among shareholders and amount of
Dividend Policy
profit to be treated as retained earnings for
financing its long term growth
Working capital This fund is used for daily operations
This includes materials which have been put into
Work in Progress production process but have not yet been
completed
This is a decision support tool that uses a tree-like
graph or model of decisions and their possible
Decision Tree Analysis
consequences, including chance event outcomes,
resource costs, and utility.
This is a form of financing which is mobilized
Security Financing through the issuance of securities such as shares
and debenture
This is a measure of both a company's efficiency
Working Capital
and its short-term financial health.
This is a measurement of the degree to which a
Degree of Operating Leverage firm or project incurs a combination of fixed and
variable costs
This is a metric that measures the degree to which
Degree of Financial Leverage a company uses fixed income securities such as
debt and preferred equity.
This is a stage in capital budgeting wherein actual
Performance Review
results are compared with the standard results
This is a statistical measure of the variability of a
Standard deviation distribution around its mean. It is the square root of
the .
This is also considered as the evaluation of the
Credit Analysis
ability of a company to pay its financial obligations
This is also known as the benefit-cost ratio of a
Profitability Ratio
project.
This is an investment made by a company from
Foreign Direct Investment
one country into a company from another country.
This is an investment vehicle for investors who
pool their savings for investing in diversified
mutual fund
portfolio of securities with the aim of attractive
yields and appreciation in their value.
This is concerned with the acquisition, financing,
and management of assets with some overall goal
Financial Management in mind. Its decision function includes areas such
as investment, financing, and asset management
decisions
This is concerned with the increase in revenue and
Profit maximization
decrease in costs and expenses
Working Capital Management This is essentially an accounting strategy with a
 focus on the maintenance of a sufficient balance
between a company’s current assets and liabilities
This is one of the fee based financial services
merchant banking which includes underwriting, consultancy and other
allied services to the business concern.
This is the after tax cost of long-term funds through
Cost of debt
borrowing.
This is the amount of profit, or return, that an
Accounting Rate of Return individual can expect based on an investment
made.
This is the capital invested in total current assets
Gross Working Capital
of the business concern.
This is the completed products and is already final
Finished Goods
output of the production process
This is the condition under which goods are sold
on credit are referred as credit terms. This
Credit Terms
basically includes credit period, cash discount and
cash discount period
This is the credit extended by
trade credit one trader to another for the purchase
of goods and services
This is the discount rate that equates the present
Internal Rate of Return value of the expected net cash flows with the initial
cash outflow
This is the excess capital over the minimum
Temporary Working Capital
amount of working capital that must be maintained.
This is the minimum amount of capital that must be
Permanent Working Capital
maintained
This is the mix or proportion of a firm’s permanent
Capital Structure long-term financing represented by debt, preferred
stock, and common stock equity.
This is the money provided by investors to startup
venture capital firms and small businesses with perceived long-
term growth potential
This is the process in which a business determines
Capital Budgeting and evaluates potential expenses or investments
that are large in nature.
This is the required rate of return on the various
Cost of capital
types of financing.
This is the required return on investment of the
Cost of Equity
common shareholders of the company.
This is the required return on investment of the
Cost of debt
lenders of a company.
This is the required return on investment of the
Cost of preference share
preferred shareholders of the company.
Inflation Risk This is the rise in inflation that leads to reduction in
the purchasing power which influences only few
people to invest due to Interest Rate Risk which is
nothing but the variability of return of the
investment due to oscillation of interest rates due
 to deflationary and inflationary pressures.
This is the selling of accounts receivable at a
factoring discount to a third-party funding source to raise
capital.
This is the time required to recover the initial
Payback Period
investment in a project.
This is the use of various financial instruments or
leverage borrowed capital, such as margin, to increase the
potential return of an investment.
This one measures and considers the cash inflows
Post-Payback Profitability
earned after pay-back period.
This policy is usually used when the companies
Irregular Dividend Policy are facing constraints of earnings and
unsuccessful business operation
This refers to a situation in which possible future
events can have reasonable probabilities assigned
Risk while uncertainty refers to situations in which there
is no viable method of assigning probabilities to
future random events.
This refers to the level of inventory at which the
Economic Order Quantity (EOQ) total cost of inventory comprising ordering cost and
carrying cost.
This refers to the unsecured deposits invited by
public deposit companies from the people mainly to finance
working capital needs.
This refers to the variability of returns due to
Market Risk fluctuations in the securities market which is more
particularly to equities market
This represents the basic criteria for the extension
Credit Standards
of credit to customers.
This shows how changes in balance sheet
accounts and income affect cash and cash
Statement of Cash Flows
equivalents, and breaks the analysis down to
operating, investing and financing activities
This type financing borrows money with interest
Loan Financing from financial institutions such as banks and
credit-unions.
This type of decision making applies when the
projects proposed are independent from each
Accept-Reject other. The acceptance or rejection of one proposal
does not affect the decision on the other
proposals.
Total asset turnover, receivables turnover and
efficiency
inventory turnover ratios measure
Traditional and MM approaches or theories have
several common assumptions including no taxes,
TRUE all earnings are paid as dividends, earnings before
interest and taxes is constant so with business
risks.
TRUE Under the pessimistic scenario, the minimum set
 present value of a project is shown and the least
favorable value is assigned to each variable.
Under the pessimistic scenario, the minimum set
TRUE present value of a project is shown and the least
favorable value is assigned to each variable.
Unique risk is a function of a well-diversified
FALSE
portfolio per CAPM.
Vertical merger is a case of combining two
FALSE companies who are competitors in the same
industry.
What is the ultimate objective of Financial
Wealth maximization
Management?
Which does not belong to the classification of the
based on interest
sources of financing?
Customer's ability to pay Which does not belong to the group?
Goods in transit Which does not belong to the group?
retained earnings Which does not belong to the group?
debentures Which is an example of borrowed funds?
Retained Earnings Which is an example of owner's financing?
FPL Co. Loaned an amount payable in 2 Which is considered as medium-term source
years. finance?
Personnel Management Which is not a function of financial management?
Auto Motive Which is not a motive of holding cash?
Observation of proposal making Which is not a part of capital budgeting process?
To avoid under stock of inventory and to Which is not an objective of inventory
let the entity have over stocks management?
To maintain optimum inventory to Which is not an objective of inventory
minimize the profitability management?
Savings Promotion Which is not included in the group
Shares Which is not included in the group?
net income to gross sales ratio Which is not included in the group?
marketable securities Which is not included in the group?
Building Which is not included in the group?
Which of the following alternatives could potentially
Bought merchandise on account
increase current ratio?
Sell merchandise with 20% mark-up Which of the following can increase net profit
from the original price margin?
Which of the following does not belong to the
dividend price minus growth approach
group?
Final Approval - Implementing - Fixing Which of the following has a wrong order based on
Properties the discussion in capital budgeting process
Matching of Proposals- Performance Which of the following has a wrong order based on
Review - Final Approval the discussion in capital budgeting process
Which of the following is not a classification of
External Sources
funds on the basis of period?
Online Bankng Which of the following is not a form of special
 financing?
Which of the following is not considered a capital
component for the purpose of calculating the
Accruals
weighted average cost of capital (WACC) as it
applies to capital budgeting?
The finance manager must posses
knowledge in the areas of accounting, Which of the following statements is true?
finance, economics and management.
All of these Which of the following statements is true?
Savings are possible only when the
business has higher expenses than its Which statement is false
revenues.
Payable turnover is a liquidity ratio Which statement is false
Financial decision will affect the entire
business operation because decisions
Which statement is false
have indirect relationship with the
various department functions.
A Factoring portfolio is structured and
maintained to match the investment Which statement is false?
objectives stated in its prospectus.
Lease may be defined as a contractual
arrangement wherein the lessor makes Which statement is false?
periodic payment to the lessee.
Accounting records does not include the
financial information of the business Which statement is false?
concern
Payback method is a traditional method Which statement is true?
XYZ Co.’s preferred share selling at P 75.25 pays
an annual dividend of P 6.75
8.97%
What is the required rate of return on this preferred
share?
XYZ Corporation plans to produce and sell
Products A and B. Both products will be
manufactured using the same plant. The total
Fixed costs per year will remain the same at
P380,000. Each product will be sold at P120 each.
Product B Variable cost is 60%. The demand for Product A is
10,000and Product B is 15,000 with a probability of
80% and 60%, respectively.
Considering the probability of 80% for Product A
and 60% for Product B, which will be more
profitable to produce and sell?
XYZ Corporation plans to produce and sell
Products A and B. Both products will be
manufactured using the same plant. The total
Fixed costs per year will remain the same at
5,277.77 units P380,000. Each product will be sold at P120 each.
Variable cost is 60%. The demand for Product A is
10,000and Product B is 15,000 with a probability of
80% and 60%, respectively.
The break-even point is units for both products is
 XYZ Corporation plans to produce and sell
Products A and B. Both products will be
manufactured using the same plant. The total
Fixed costs per year will remain the same at
P380,000. Each product will be sold at P120 each.
P 4,000
Variable cost is 60%. The demand for Product A is
10,000and Product B is 15,000 with a probability of
80% and 60%, respectively.
The net income if Product A is chosen to be
produced?
You invest P6, 000 in security X with a beta of 1.2
1.08 and P4, 000 in security Y with a beta of 0.90. The
beta of the resulting portfolio is

PRELIM TO FINALS
Identify the function being described: The board of directors and finance manager
decided to offer stocks to the public so that they can have the resources for business
expansion.
= Acquiring necessary capital
Identify the function being described: The board of directors and finance manager
decided to offer stocks to the public so that they can have the resources for business
expansion.
= Acquiring necessary capital
Lancaster Co. and York Co. have the same value of return on assets (ROA).
What will happen if Lancaster Co. adjusts its accounting records for the disposal
of unusable equipment at a loss?
= Lancaster Co.'s ROA will be lower than York Co.
Sexy Corporation’s current ratio is 0, while Coke Company’s current ratio is
1. Both firms want to “window dress” their coming end-of-year financial statements. As part
of its window dressing strategy, each firm will double its current liabilities by adding
short-term debt and placing the funds obtained in the cash account. Which of the
statements below best describes the actual results of these transactions?
=Only Sexy Corporation’s current ratio will be increased.
Which of the following statements is true?
= The finance manager must posses knowledge in the areas of accounting,
finance, economics
and management.
Which is not included in the group
= Savings Promotion
Which of the following can increase net profit margin?
= Sell merchandise with 20% mark-up from the original price
Which of the following alternatives could potentially result in a increase of current ratio?
=Bought merchandise on account
Stennett Corp.’s CFO has proposed that the company made a new debt and used the
proceeds to buy equipment. Which of the following is likely to occur if this proposal is
adopted?
= Return on Assets (ROA) will decline.
This is concerned with the increase in revenue and decrease in expenses
= Profit maximization
Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of the
following statements can be true?
=Company A and Company B have equal amount of Equity.
This is concerned with the acquisition, financing, and management of assets with some
overall goal in mind. Its decision function includes areas such as investment, financing,
and asset management decisions
= Financial Management
Amazona company wants to increase its debt to total assets ratio, which of the following
activities could make this possible?
= Make a loan
Identify what is being described. The company had a net profit after taxes worth Php
1,000,000. The board and the management decided not to distribute dividends to
shareholders instead, it retained its earnings for the year so that the business can have
resources for future use.
= Increasing the value of the firm
Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of the
following statements can be true?
=Company A and Company B have equal amount of Equity.
Identify what is being described. The company had a net profit after taxes worth Php
1,000,000. The board and the management decided not to distribute dividends to
shareholders instead, it retained its earnings for the year so that the business can have
resources for future use.
= Increasing the value of the firm
Which is not a function of financial management?
= Personnel Management
Selzer Inc. has a net profit after taxes worth 62,195. It has a total assets worth 3 million,
with a debt-to-equity ratio of 0. What is the firm’s return on equity (ROE)?
= 3%
Which statement is false
= Savings are possible only when the business has higher expenses than its
revenues.
Which is considered as medium-term source finance?
= FPL Co. Loaned an amount payable in 2 years.
This fund is used for daily operations
= Working capital
Which is an example of owner's financing?
= Retained Earnings
These are funds that are required to purchase fixed assets such as land, building, plant,
machinery, furniture and fixtures.
= Fixed Capital
In this type of financing, the business entity which has already operated may get funds
internally from depreciation funds and retained earnings.
= Internal financing
This type financing borrows money with interest from financial institutions such as banks
and credit-unions.
= Loan Financing
Which of the following is not a classification of funds on the basis of period?
= External Sources
Which is an example of borrowed funds?
= debentures
Which is considered as medium-term source finance?
= FPL Co. Loaned an amount payable in 2 years.
Which statement is false
= Financial decision will affect the entire business operation because decisions have
indirect relationship with the various department functions
Which of the following is not a classification of funds on the basis of period?
= External Sources
In this type of analysis you may compare figures from several years, so you are
comparing the amounts in each account from the past up to the present.
=horizontal analysis
Identify the function being described: The board of directors and finance manager
decided to offer stocks to the public so that they can have the resources for business
expansion.
=Acquiring necessary capital
Fama’s French Bakery has a return on assets (ROA) of 10 percent and a return on
equity (ROE) of 14 percent. If equity is equal to 100,000. What is the value of total
assets?
=140,
Minden Co has current assets that consist of cash: Php20,000, receivables: Php70,000
and inventory: Php90,000. Current liabilities are Php75,000. The current ratio is:
=2.
FPL Company has cash and cash equivalents worth 10,000; equipment worth 20,000;
accounts receivable worth 15,000; notes receivable worth 12,000 ; accounts payable
worth 10,000 and notes payable worth 5,000 maturing after one month. What is the
current ratio?
= 1.
Fama’s French Bakery has a return on assets (ROA) of 10 percent and a return on
equity (ROE) of 14 percent. If equity is equal to 100,000. What is the value of total
assets?
=140,
Stennett Corp.’s CFO has proposed that the company made a new debt and used the
proceeds to buy equipment. Which of the following is likely to occur if this proposal is
adopted?
=Return on Assets (ROA) will decline.
Selzer Inc. has a net profit after taxes worth 62,195. It has a total assets worth 3 million,
with a debt-to-equity ratio of 0. What is the firm’s return on equity (ROE)?
=3%
What is the ultimate objective of Financial Management?
=Wealth maximization
A firm has a profit margin of 15 percent on sales of 20,000,000. If the firm has debt of
7,500,000, total assets of 22,500,000, and an after tax interest cost on total debt of 5
percent, what is the firm’s ROA?
=13%
Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of the
following statements can be true?
The Merriam Company has determined that its return on equity is 15 percent.
Management is interested in the various components that went into this calculation. You
are given the following information: (total debt)/(total assets) = 0 and total assets =
1,000,000. What is the net income?
=97,
Return on sales, return on assets and return on equity are examples of
=profitability ratios
The receivables turnover ratio is defined as
=sales divided by receivables
Which of the following alternatives could potentially result in a increase of current ratio?
=Bought merchandise on account
Shepherd Enterprises has a debt-to-equity ratio of 40 percent. The company’s total
assets is equal to Php 800 million. What is the value of the company's total liabilities?
=Php 228,571,
Which of the following can increase net profit margin?
=Sell merchandise with 20% mark-up from the original price
FPL Co. Statement of Financial Position has Total Assets worth 100,000 wherein
60,000 is non-current. It also has Total Liabilities worth 200,000 wherein 80, is non-
current. It was found out that there was an unrecorded depreciation worth 20,000 and
unrecorded purchase of merchandise on account worth 15,000. What is the current
ratio?
=0.
Which is not included in the group
=Savings Promotion
Fana’s American Bakery has a return on assets (ROA) of 10 percent and a return on
equity (ROE) of 14 percent. If total assets is 100,000, what is the value of its total
equity?
= 71,
FPL Co. Statement of Financial Position has Total Assets worth 100,000 wherein
60,000 is non-current. It also has Total Liabilities worth 200,000 wherein 80, is non-
current. It was found out that there was an unrecorded depreciation
worth 20,000 and unrecorded purchase of merchandise on account worth 15,000. What
is the current ratio?
=0.
Fana’s American Bakery has a return on assets (ROA) of 10 percent and a return on
equity (ROE) of 14 percent. If total assets is 100,000, what is the value of its total
equity?
= 71,
This is concerned with the increase in revenue and decrease in costs and expenses
=Profit maximization
The quick ratio is defined as:
=current assets less inventory, less prepaid expenses. The resulting amount will then be
divided by current liabilities
Stennett Corp.’s CFO has proposed that the company made a new debt and used the
proceeds to buy equipment. Which of the following is likely to occur if this proposal is
adopted?
=Return on Assets (ROA) will decline.
Total asset turnover, receivables turnover and inventory turnover ratios measure
=efficiency
Identify what is being described. The company had a net profit after taxes worth Php
1,000,000. The board and the management decided not to distribute dividends to
shareholders instead, it retained its earnings for the year so that the business can have
resources for future use.
=Increasing the value of the firm
Amazona company wants to increase its debt to total assets ratio, which of the following
activities could make this possible?
=Make a loan
FPL Company has cash and cash equivalents worth 10,000; equipment worth 20,000;
accounts receivable worth 15,000; notes receivable worth 12,000 ; accounts payable
worth 10,000 and notes payable worth 5,000 maturing after one month. What is the
current ratio?
= 1.
Amazona company wants to increase its debt to total assets ratio, which of the following
activities could make this possible?
=Retained Earnings
Which is not a function of financial management?
=Personnel Management
Current assets divided by current liabilities is the definition of the:
=Current ratio
Which is not included in the group
=Savings Promotion
Minden Co has current assets that consist of cash: 20,000, receivables: 70, and
inventory: 90,000. Current liabilities are 75,000. The quick ratio is
=1.
Lancaster Co. and York Co. have the same value of return on assets (ROA). What will
happen if Lancaster Co. adjusts its accounting records for the disposal of unusable
equipment at a loss?
=Lancaster Co.'s ROA will be lower than York Co.
Which of the following is not a classification of funds on the basis of period?
=External Sources
Which is considered as medium-term source finance?
=FPL Co. Loaned an amount payable in 2 years.
Which of the following can increase net profit margin?
=Sell merchandise with 20% mark-up from the original price
Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of the
following statements can be true?
=Company A and Company B have equal amount of Equity.
Lancaster Co. and York Co. have the same value of return on assets (ROA). What will
happen if Lancaster Co. adjusts its accounting records for the disposal of unusable
equipment at a loss?
=Lancaster Co.'s ROA will be lower than York Co.
The Merriam Company has determined that its return on equity is 15 percent.
Management is interested in the various components that went into this calculation. You
are given the following information: (total debt)/(total assets) = 0 and total assets =
1,000,000. What is the net income?
=97,
Ratios that measure the ability of the company to pay its short-term debts are called:
= liquidity ratios
This is a form of financing which is mobilized through the issuance of securities such as
shares and debenture
= Security Financing
This is the capital invested in total current assets of the business concern.
= Gross Working Capital
This refers to the level of inventory at which the total cost of inventory comprising
ordering cost and carrying cost.
=Economic Order Quantity (EOQ)
FPL company has machineries and equipment worth 150,000, land and building for
business 1,000,000, Cash 150,000, Inventories 30,000 and accounts receivables
50,000. He also owes 200,000 to a bank. How much is the gross working capital?
= Php 230,
FPL Company has a gross working capital of 100,000 and the company has 200,000
total liabilities of which 150,000 are long term debts. What is the net capital?
= 50,
FPL Company has a total Assets worth 400,000 of which 250,000 are non current the
company also has 200,000 total liabilities of which 150,000 are long term debts. What is
the gross working capital?
= 150,
FPL Company has a net working capital of 100,000 and the company has 200,000 total
liabilities of which 150,000 are long term debts. What is the gross capital?
=150,
Which is not a motive of holding cash?
=Auto Motive
=Matching of Proposals- Performance Review - Final Approval
A corporation is issuing 10% common stock that should be sold for Php 15 each. The
business will incur flotation costs of Php 5 per share. What is the cost of equity?
=15%
Given:
Debt= 1,000,000 ; Common Shares = 10,000,000 ; Preference Shares = 5,000,
Cost of Debt = 10% ; Cost of Preference Shares = 5% ; Cost of Equity = 3%
= 650,
Which does not belong to the classification of the sources of financing?
=based on interest
This determines the amount of profit to be distributed among shareholders and amount
of profit to be treated as retained earnings for financing its long term growth
=Dividend Policy
This is the after tax cost of long-term funds through borrowing.
=Cost of debt
This type of decision making applies when the projects proposed are independent from
each other. The acceptance or rejection of one proposal does not affect the decision on
the other proposals.
=Accept-Reject
A corporation is issuing 10% common stock that should be sold for Php 15 each. The
business will incur flotation costs of Php 2 per share. With growth rate of 5% What is the
cost of capital?
=16%
FLP Company has 1000 existing common shares. The market value of the share is Php
90 and the net earnings is Php 1,000. What is the cost of Capital assuming that the new
shares will be issued at market price?
=1%
This is the use of various financial instruments or borrowed capital, such as margin, to
increase the potential return of an investment.
=leverage
Which of the following does not belong to the group?
=Intermediate Approach
If you have a financial source that is required to be paid within four years, you have a
=Medium-term source
These proposals are those that compete with other. Therefore, the acceptance of one
proposal will exclude the acceptance of the other proposals.
=Mutually Exclusive
Examples of this outlay are the purchase of fixed assets such as land and building,
plant and machinery, expenses relating to improvement or renovation these fixed assets
and costs incurred for the research and development projects
=Fixed capital
These proposals are those that compete with other. Therefore, the acceptance of one
proposal will exclude the acceptance of the other proposals.
=Mutually Exclusive
Which of the following has a wrong order based on the discussion in capital budgeting
process
=Matching of Proposals- Performance Review - Final Approval
These funds are obtained from banks and credit unions
=borrowed funds
Which is not a part of capital budgeting process?
=Observation of proposal making
This is a statistical measure of the variability of a distribution around its mean. It is the
square root of the variance.
= Standard deviation
According to this approach, the mix of debt and equity capital can increase the
value of the firm by reducing overall cost of capital up to certain level of debt.
= Traditional Approach
A corporation is issuing 10% common stock that should be sold for Php 15 each. The
business will incur flotation costs of Php 5 per share. What is the cost of equity?
=15%
This is the mix or proportion of a firm’s permanent long-term financing represented by
debt, preferred stock, and common stock equity.
=Capital Structure
Given:
Debt= 1,000,000 ; Common Shares = 10,000,000 ; Preference Shares = 5,000,
Cost of Debt = 10% ; Cost of Preference Shares = 5% ; Cost of Equity = 3%
=650,
This is the required return on investment of the common shareholders of the company.
= Cost of Equity
These are source of finances are those which are required for a period of more than five
years.
=Long-term
In this approach, the mix of debt and equity capital can increase the value of the firm by
reducing overall cost of capital up to certain level of debt.
=Intermediate Approach
This is the required return on investment of the lenders of a company.
=Cost of debt
Identify what is being described. ABC manufacturing business purchases materials
worth Php 1,000,000 from X company. the ammount is payable within 2 months.
= notes and bank loan ( Mali ‘to)
FLP Company has 1000 existing common shares. The market value of the share is Php
90 and the net earnings is Php 1,000. What is the cost of Capital assuming that the new
shares will be issued at market price?
=1%
This is a statistical measure of the variability of a distribution around its mean. It is the
square root of the variance.
=Standard deviation
Which does not belong to the group?
= Commercial papers (Mali ‘to)
Which of the following has a wrong order based on the discussion in capital budgeting
process
=Matching of Proposals- Performance Review - Final Approval
This is a metric that measures the degree to which a company uses fixed income
securities such as debt and preferred equity.
=Degree of Financial Leverage
This policy is usually used when the companies are facing constraints of earnings and
unsuccessful business operation
= Irregular Dividend Policy
If you have a financial source that is required to be paid within ten years, this describes
=Long-term source
This is the after tax cost of long-term funds through borrowing.
=Cost of debt
This is a measurement of the degree to which a firm or project incurs a combination of
fixed and variable costs
=Degree of Operating Leverage
These are sources of finances which have a required of payment for a period not
exceeding one year.
=Short-term
FPL Company plans to make Php50,000 loan with Php7,000 annual interest. If the cost
incurred related to this instrument is Php2,000 and the total tax rate is 30%, what is the
cost of debt?
=10%
= Auto Motive
FPL Company has a gross working capital of 100,000 and the company has 200,000
total liabilities of which 150,000 are long term debts. What is the total current assets?
= 100,
This is the capital invested in total current assets of the business concern.
= Gross Working Capital
This refers to the level of inventory at which the total cost of inventory comprising
ordering cost and carrying cost.
= Economic Order Quantity (EOQ)
FPL company has machineries and equipment worth 150,000, land and building for
business 1,000,000, Cash 150,000, Inventories 30,000 and accounts receivables
50,000. He also owes 200,000 to a bank. How much is the gross working capital?
= Php 230,
Which is not a motive of holding cash?
= Auto Motive
FPL Company has a gross working capital of 100,000 and the company has 200,000
total liabilities of which 150,000 are long term debts. What is the net capital?
= 50,
FPL Company owes Php20,000 to supplier A, Php30,000 to Supplier B, 50,000 to
Supplier C and a long term bonds payable 10,000. After struggling in its operations, the
company ended up having Php20,000 cash on hand, Php30, worth inventories,
Php40,000 Accounts receivable and equipment worth Php50,000. What is the net
working capital?
= none of these
FPL Company has a gross working capital of 100,000 and the company has 200,000
total liabilities of which 150,000 are long term debts. What is the total current assets?
= 100,
This is the capital invested in total current assets of the business concern.
= Gross Working Capital
FPL Company has a gross working capital of 100,000 and the company has 200,000
total liabilities of which 150,000 are long term debts. What is the total current assets?
= 100,
Which is not a motive of holding cash?
= Auto Motive
Which is not a motive of holding cash?
= Auto Motive
FPL Company has a total Assets worth 400,000 of which 250,000 are non current the
company also has 200,000 total liabilities of which 150,000 are long term debts. What is
the gross working capital?
= 150,
FPL Company has a net working capital of 100,000 and the company has 200,000 total
liabilities of which 150,000 are long term debts. What is the gross capital?
= 150,
This is the capital invested in total current assets of the business concern.
= Gross Working Capital
FPL Company has a gross working capital of 100,000 and the company has 200,000
total liabilities of which 150,000 are long term debts. What is the net capital?
= 50,
Which is not a motive of holding cash?
= Auto Motive
FPL Company has a net working capital of 100,000 and the company has 200,000 total
liabilities of which 150,000 are long term debts. What is the gross capital?
= 150,
This refers to the level of inventory at which the total cost of inventory comprising
ordering cost and carrying cost.
= Economic Order Qu
The current assets and current liabilities of FPL company is 10 and 20 respectively.  Reviewing
the past transactions the company purchased merchandise worth 5 and it was immediately paid.
However, it was discovered that this transaction was mistakenly recorded as a purchase on
account.  After adjusting the errors, what is the the current ratio?