The University of Manila Corporate Finance Midterm Examination Name: Date: Schedule: Course/Year/Set With book ____ __ Without

book______

General Direction: This questionnaire consists of three pages with seven questions-5 essay questions and 2 problem solving questions. This is open notes, open book exam! Ad Majorem Dei Gloriam Part I. Essay Direction. Answer the following questions directly and sequentially. A mere yes or no answer without any explanation will not be given any credit.

1. Compare and contrast financial planning from corporate planning.

2. Explain the meaning and objectives of budgeting. What is budgetary control?

3. Distinguish equity form of capital from borrowing.

4. Should the business entity have more invested capital or borrowed capital? Explain your side with finance doctrines.

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5. What is financial leverage?

Part I. Problem Solving 1. Assume that Grand Operamini Hotel has a fixed cost and expenses amounting to P 100,000. Further, it has a unit selling price of P 60 and unit variable costs and expenses amounting to P 50. Compute for the breakeven point sales volume and breakeven point peso sales. ( 5 pts.)

2. Based on the Balance Sheet of Example Company (see page three [3]), compute for the following financial ratios and explain their significance:

a .Current ratio

b. Acid test ratio

c. Debt/Equity ratio

d. Equity/Debt ratio

e. Current assets to total assets

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Example Company Balance Sheet December 31, 2011

ASSETS Current Assets Cash Petty Cash Temporary Investments Accounts Receivable - net Inventory Supplies Prepaid Insurance Total Current Assets Investments Property, Plant & Equipment Land Land Improvements Buildings Equipment Less: Accum Depreciation Prop, Plant & Equip - net Intangible Assets Goodwill Trade Names Total Intangible Assets Other Assets Total Assets LIABILITIES Current Liabilities Notes Payable Accounts Payable Wages Payable Interest Payable Taxes Payable Warranty Liability Unearned Revenues Total Current Liabilities Long-term Liabilities Notes Payable Bonds Payable Total Long-term Liabilities

$ 2,100 100 10,000 40,500 31,000 3,800 1,500 89,000 36,000

$ 5,000 35,900 8,500 2,900 6,100 1,100 1,500 61,000 20,000 400,000 420,000

5,500 6,500 180,000 201,000 (56,000) 337,000

Total Liabilities

481,000

105,000 200,000 305,000 3,000 $770,000 Total Liab. & Stockholders' Equity $770,000 STOCKHOLDERS' EQUITY Common Stock Retained Earnings Less: Treasury Stock Total Stockholders' Equity 110,000 229,000 (50,000) 289,000

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