COLEGIO DE SAN LORENZO

Congressional Avenue, Quezon City

SCHOOL OF BUSINESS AND MANAGEMENT

Bachelor of Science in Business Administration
Major in Financial Management

PRELIMINARY EXAMINATION IN FINANCIAL MANAGEMENT

Test I. Write T if the statement is correct and False if the statement is wrong.
1. The goal of financial management is to make money and add value for the owner.
2. Financial Management is the key function and many firms prefer to centralize the function to keep
constant control on the finances of the firm.
3. It is advantageous to decentralized accounting function to speed-up the processing of information.
4. Corporate governance is the system of incentives and monitors that tries to overcome the agency
problem.
5. Shareholders can align managers interest with stockholder interests by making managers part owners of
the firm
6. Financial Management is something more than an art of accounting and bookkeeping.
7. Strategic Financial Management involves financial planning, financial forecasting, provision of finance
and formulation of finance policies which lead the firms survival or failure.
8. The responsibility of a finance manager is To provide a basis and information for strategic positioning of
the firm in the industry.
9. Financial policy should be aligned with the corporate strategic objectives.
10. A plans success depends on an effective analysis of market demand and supply.
11. Financial policy allows the firm in overcoming in weaknesses, enables the firm to maximize the
utilization of its competencies and to direct the prospective business opportunities and threats to its
advantage.
12. A companys strategic or business plan reflects how it plans to achieve its goals and objectives.

13. Historical financial statements reveal areas that are less effective and provide information to help
managers develop remedial action.
14. The term working capital refers to a firm short-term asset and its short-term liabilities.
15. In fund raising decisions, the finance manager should keep in view how and where to raise the money,
determination of the debt-equity mix, impact of interest, and inflation rates on the firm and so forth.
16. It is the responsibility of financial management to allocate funds to current and fixed assets, to obtain the
best mix of financing alternatives, and to develop an appropriate dividend policy within the context of
the firms objectives.
17. The Controllers office handles cost and financial accounting, tax payments and management
information systems.
18. The treasurers office is responsible for managing the firms cash and credit, its financial planning, and
its capital expenditures.
19. Manufacturing deals with the design and production of a product.
20. Marketing involves the selling, promotion and distribution of a product.

Test II. Write the letter of the correct answer.

1. All of the following are multidimensional objectives which strategic financial planning should
concentrate, except:
a. Profitability
b. Durability
c. Brand positioning
d. Survival
2. All of the following are multidimensional objectives which strategic financial planning should
concentrate, except:
a. Expansion growth
b. Leadership
c. Unity
d. Business success
3. All of the following are multidimensional objectives which strategic financial planning should
concentrate, except:
a. Restructuring of Organizational Chart
b. Survival
c. Reaching global markets
d. Positioning of the firm
4. All of the following are long-term financial objectives of a firm, except:
a. Growth in the market value of the equity shares through maximization of the firms market share and
sustained growth in dividend to shareholders

b. Growth in earnings per share and price/earnings ratio through maximization of net income or profit
and adoption of optimum level of leverage
c. Survival and sustained growth of the firm
d. None of the above
5. All of the following are short-term and medium-term financial objectives of a firm except:
a. Maximization of return on capital employed or return on investment
b. Minimization of finance charges
c. Efficient procurement and utilization of short-term, medium term and long-term funds.
d. None of the above
Test III. Time Value of Money (Answers ONLY)
1. If you invest P10,000 today, how much will you have in 10 years at 10 percent?
2. If you invest P10,000 today, how much will you have in 10 years compounded at 10 percent?
3. If you invest P10,000 today, how much will you have in 10 years at 10% (compounded semi-annually)?
4. How much would you have to invest today to receive P10,000 in 10 years discounted at 10%?
5. Mrs. Perez will receive P10,000 a year for the next 10 years from her trust. If an 10% interest rate is
applied, what is the current value at the future payments?
6. If you invest P10,000 per period for 2 years, how much would you have at 9%?
7. SBM Inc is considering an investment in a new machine costing P10,000. The machine is expected to
provide the following returns over the next five years: year 1 = P1,000, year 2 = P2,000, year 3 =
P3,000, year 4 = P4,000 and year 5 = P5,000. These returns are assumed to be received at the end of
each year. If the firm requires a 0.5% return on its investment, how much is the total present value?
8. What is the present value of a stream of payments of P10,000 per year forever, assuming interest rate of
10%?

Test IV. Financial Statement Analysis. Using the Statement of Financial Position and the
Income Statement of the CDSL Inc, compute the following:
1. Working Capital in 2014
2. Current Ratio in 2014
3. Quick Ratio in 2014
4. Average Collection Period in 2014
5. Average Sale Period in 2014
6. Gross Profit Margin in 2014
7. Operating Profit Margin in 2014
8. Net Profit Margin in 2014
9. Return on Total Asset in 2014
10. Return on Equity in 2014
11. Debt Ratio in 2014
12. Equity Ratio in 2014
13. Debt to Equity Ratio in 2014
14. The increase amount in percentage of the total asset in 2013 and 2014 (Horizontal Analysis)
15. The amount in percentage of the Operating Profit in 2014 (Vertical Analysis)
Prepared by: Alan Lancelot D. Makasiar
Noted by: Alan Lancelot D. Makasiar
Approved: Ellen S. Dizon
(Program Coordinator)
(SBM-Dean)

ANSWER
Test I. T or F
1-27 All are True
Test II. MCQ:
1. B
2. C
3. A
4. B
5. D
Test III. Computations
1. F = P + PRT
F = 10,000+(10,000 x 0.10 x 10)
F = P20,000
2. F = P(1+i)^n
F = 10,000(1.1)^10
F = P25,937.42
3. F = P(1+i/m)^mn
F = 10,000(1.05)^20
F = P26,532.98
4. P = F/(1+i)^n
P = 10,000/(1.1)^10
P = P3,855.43
5. PVOA = F [(1 (1+i)^-n / i]
PVOA = 10,000[(1-(1.1)^-10/0.1]
PVOA = P61,445.67
6. FVOA = P [(1 + i)^n 1]/i
FVOA = 10,000 [(1.09)^2 1]/0.09
FVOA = P20,900
7. P = F/(1 + i)n
P = (1000/1.005^1)+(2000/1.005^2)+(3000/1.005^3)+(4000/1.005^4)+(5000/1.005^5)
P = P14,728.46
8. P = 10,000/0.10
P = P100,000
Test IV.
1. Working Capital = Current Asset - Current Liability
Working Capital = P31,892.50 P13,730.50
Working Capital = P18,162.00
2. Current Ratio = Current Asset/Current Liability
Current Ratio = P31,892.50 / P13,730.50
Current Ratio = 2.32 times
3. Quick Ratio = Cash + Marketable Securities + Net Receivables / Current Liabilities
Quick Ratio = 1,000 + 2,636 + (4,704 - 224) / 13,730
Quick Ratio = 8116 / 13,730
Quick Ratio = 0.59 times
4. Average Collection Period = 365 days / Accounts Receivable Turnover
Average Collection Period = 365 days / (100,800)/ 4704-224+4383.5-208.5/2)
Average Collection Period = 365 days / 100,800 / 4327.5
Average Collection Period = 15.67 days or 16 days

5. Average Sale Period = 365 days / Inventory Turnover

Average Sale Period = 365 days / 64,682/(23,520.50+18384.50)/2
Average Sale Period = 365 days / 64,682/20,952.50
Average Sale Period = 118.23 days or 118 days
6. Gross Profit Margin = Gross Profit / Net Sales
Gross Profit Margin = 36,118/100,800
Gross Profit Margin = 35.83%
7. Operating Profit Margin = Operating Profit / Net Sales
Operating Profit Margin = 9621.50 / 100,800
Operating Profit Margin = 9.55%
8. Net Profit Margin = Net Income / Net Sales
Net Profit Margin = 4,697 / 100,800
Net Profit Margin = 4.66%
9. Return on Total Asset = Net Income / Average Total Assets or Net Profit Margin x Total Asset Turnover
Return on Total Asset = 4,697 / (46,618.50 + 37,954.50)/ 2
Return on Total Asset = 4,697 / 42,286.50
Return on Total Asset = 11.11%
10. Return on Equity = Net Income / Average Stockholders Equity
Return on Equity = 4,697 / (21,937 + 18,933.50) / 2
Return on Equity = 4,697 / 20,435.25
Return on Equity = 22.98%
11. Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = 24,681.50 / 46,618.50
Debt Ratio = 52.94%
12. Equity Ratio = Total Equity / Total Assets
Equity Ratio = 21,937 / 46,618.50
Equity Ratio = 47.06%
13. Debt to Equity Ratio = Total Liabilities / Total Equity
Debt to Equity Ratio = 24,681.50 / 21,937
Debt to Equity Ratio = 112.51%
14. The increase amount in percentage of the total asset in 2013 and 2014 (Horizontal Analysis) = (Total
Asset 2014 - Total Asset 2013) / Total Asset 2013
= (14,539.50 - 9,488.50) / 9,488.50
= 5,051 / 9,488.50
= 53.23%

15. The amount in percentage of the Operating Profit in 2014 (Vertical Analysis) = Operating Income / Net
Sales
= 9,621.50 / 100,800.00
= 9.55%