REVISED FINAMA Reviewer With Answers

1. Which of the following statement is true?
A. Examples of subjective methods of forecasting include trend forecasts and the

percent of sales method.
B. A sale forecast is a key ingredient in a firm’s financial planning
C. The first step in the financial planning process is to develop long-term financial
plans.
D. Financial planning is the process of projecting or estimating some future financial
eveny or condition of a firm.
2. Conservative working capital management strategies involve
A. Low risk, high return
B. High risk, high return
C. Low risk, low return
D. Moderate risk, moderate return
3. A firm has daily cash receipts of P100,000. A bank has offered to reduce the collection
time on the firm’s deposits by two days for a monthly fee of P500. If money market
rates are expected to average 6 per cent during the year, the net annual benefit from
having this service is
A. P3,000 C. P0
B. P12,000 D. P6,000
4. The following information regarding a change in credit policy was assembled by the
Germa Company. The company has a required rate of return of 10 per cent and a
variable cost ratio of 60 per cent.
Old Credit Policy New Credit Policy
Sales P3,600,000 P3,960,000
Average collection period 30 days 36 days
The pretax cost of carrying the additional investment in receivable, using 360-day year,
would be
A. P5,760 C. P8,160
B. P9,600 D. P 960
5. A collection of accounts receivable can be accelerated by the use of
A. Turnaround documents C. Banks drafts
B. A lockbox system D. Remittance advices
6. A small retail business would most likely finance its merchandise inventory with
A. Commercial paper C. A terminal warehouse receipt loan
B. A line-of-credit D. A chattel mortgage
7. Cantor Creations which has 250 business days per year, manufactures desks for
desktop workstations. The annual demand for the desks is estimated to be 5,000 units.
The annual cost of carrying one unit inventory is P10, and the cost to initiate a
production run is P1,000. Cantor has scheduled four equal production runs for the
1st Semester AY 2015 – 2016 Page 1 of 25 mymaraya

coming year, the first to begin immediately. Currently, there are no desks on hand.
Assume the sales occur uniformly throughout the year and that production is
instantaneous. If Cantor Creations does not maintain a safety stock, the estimated total
carrying costs for the desks for the coming year is
A. P5,000 C. P4,000
B. P6,250 D. P10,250
8. In a comparison of 2012 with 2011, Lady Co.’s inventory turnover ratio increased
substantially although sales and inventory amounts were essentially unchanged. Which
of the following statements explains the increased inventory turnover ratio?
A. Cost of goods sold decreased.
B. Accounts Receivable turnover increased
C. Total assets turnover increased
D. Gross profit percentage decreased.
9. Kaay-ayo Corp’s current balance sheet reports the following shareholder’s equity:
5% cumulative preferred stock, par value
P100 per share; 2,500 shares issued and
outstanding P250,000
Common stock, par value P3.50 per
share; 100,00 shares issued and 350,000
outstanding
Additional paid-in capital in excess of par
value of common stock 125,000
Retained Earnings 300,000
Dividends in arrears on the preferred stock amount to P25,000. If the company was to
be liquidated, the preferred shareholders would receive par value plus a premium of
P50,000. The book value per share of common stock is
A. P7.75 C. P7.50
B. P7.25 D. P7.00
10. An analysis of a company’s planned equity financing using the capital assets pricing
model would incorporate only the
A. Expected market earnings, the current Central Bank bond yield, and the beta
coefficient.
B. Expected market earnings and the price-earnings ratio
C. Current Central Bank bond yield, the price-earnings ratio, and the beta coefficient.
D. Current Central Bank bond yield and the dividend pay-out ratio.
11. Selected data from SIKLAB Corporation’s year-end financial statements are presented
below. The difference between average and ending inventory is immaterial.
Current ratio 2.0
Quick Ratio 1.5
Current Liabilities P120,000

Inventory turnover(based on cost of goods sold) 8 times
Gross profit margin 40%
SIKLAB’s net sales for the year were
A. P800,000 C. P480,000
B. P1,200,000 D. P240,000
12. The Leyte Company has an equity cost of capital of 17%. The debt-to-equity ratio is 1.5
and cost of debt is 11%. What is the weighted average cost of capital, assuming the
tax rate is 33%?
A. 3.06% C. 16.97%
B. 13.40% D. 15.52%
13. The major benefit of diversification is to
A. Increase the expected return
B. Remove negative risk assets from the portfolio
C. Reduce the portfolio’s systematic risk
D. Reduce the expected risk
14. The most expensive source of financing for a firm is
A. Debt C. Retained Earnings
B. Preferred Stocks D. New common stocks
15. The financial manager is interested in the cash inflows and outflows of the firm, rather
than the accounting data, in order to ensure
A. Profitability C. The ability to pay dividends
B. The ability to acquire new assets D. Solvency
16. HAGUPIT Company’s December 31, 2010 balance sheet (in P’000,000) is given
below:
Cash P 10 Accounts Payable P 15
Accounts Receivable 25 Notes Payable 20
Inventories 40 Accrued Expenses 15
Long-term Debt 30
Net Fixed Assets 75 Common Stock 70
Total Assets P150 Total Liabilities and SHE P150
Sales during the past year were P100,000,000 and they are expected to rise 50 per
cent to P150,000,000 during 2011. Also, during last year fixed assets were being
utilized to only 85% of capacity, so HAGUPIT Company could have supported
P100,000,000 of sales with fixed assets that were only 85% per cent of last year’s
actual fixed assets. Assume that the HAGUPIT’s profit margin will remain constant at 5
per cent and that the company will continue to pay out 60 per cent of its earnings as
dividends. What amount of nonspontaneous, required new financing, will be needed
during the next year?
A. P55,500,000 C. P40,125,000
B. P52,500,000 D. P49,500,000

17. How should the following projects be listed in order of increasing risk?
A. New venture, replacement, expansion
B. Replacement, new venture, expansion
C. Replacement, expansion, new venture
D. Expansion, replacement, new venture
18. Information concerning the Blue Company’s common stock is as follows:
Per Share
Book value at December 31, 2014 P 12.00
Quoted market value on City stock exchange on December 31,
2014 9.00
Earnings for 2014 3.00
Par value 2.00
Dividend for 2014 1.00
What was the price-earnings ratio on common stock for 2014?
A. 2 to 1
B. 2.67 to 1
C. 3 to 1
D. 4 to 1
19. Thomas Company has an inventory conversion period of 60 days, receivables
conversion period of 45 days, and a payments cycle of 30 days. What is the length of
the firm’s cash conversion cycle?
A. 90 days C. 54 days
B. 75 days D. 105 days
20. Statement 1: As the volume of financing increases, the cost of the various type of
financing will decrease, reducing the firm’s weighted average cost of capital.
Statement 2: The weighted marginal cost of capital is an increasing function of the level
of total new financing.
A. False; True C. False; False
B. True; False D. True; True
21. Charlene owns stock in a company which has consistently paid a growing dividend
over the last five years. The first year Charlene owned the stock, she received P1.71
per share and in the fifth year, she received P2.89 per share. What is the growth rate of
the dividends over the last five years? (PERCENTAGE OF CHANGE)
A. 7 per cent C. 14 per cent
B. 12 per cent D. 5 per cent
22. A bank lends a firm P500,000 for one year at 8 per cent and requires compensating
balances of 10 per cent of the face value of the loan. The effective annual interest rate
associated with this loan is
A. 8.9 per cent C. 8.0 per cent
B. 7.2 per cent D. 7.0 per cent

23. Refers to the potential use of fixed financial charges to magnify the effects of changes
in earnings before interest and taxes on the firm’s earnings per share.
A. Financial leverage
B. Operating leverage
C. Total leverage
D. Debt service
24. Which asset would the risk-averse financial manager prefer?
Asset A B C D
Initial Investment P15,000 P15,000 P15,000 P15,000
Annual Rate of Return
Pessimistic 8% 5% 3% 11%
Most likely 12% 12% 12% 12%
Optimistic 14% 13% 15% 14%
A. Asset A C. Asset C
B. Asset B D. Asset D
25. Statement 1: To be truly marketable, a security must have three basic characteristic: a
ready market, risk free, and safety of principal.
Statement 2: Since treasury bills are issued in bearer form, they are considered to be
virtually risk-free.
Statement 3: The market for a security should have both breadth and depth in order to
minimize the amount required to convert into cash.
A. False; True; True
B. True; True; True
C. False; False; True
D. False, True; False
26. For P450,000 Jasmine Corporation purchased a new machine with an estimated useful
life of five years with no salvage value. The machine is expected to produce cash flow
from operations, net of 40 percent income taxes, as follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
Jasmine will use the sum-of-the-years-digits method to depreciate the new machine as
follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000

Fifth year 30,000
Had Jasmine used straight-line method of depreciation instead of declining method,
what is the difference in net present value provided by the machine at a discount rate
of 12 percent?
A. Increase of P9,750
B. Decrease of P9,750
C. Increase of P24,376
D. Decrease of P24,376
27. Under the judgmental approach for developing a pro-forma balance sheet, the “plug”
figure required to bring the statement into balance may be cancelled by
A. Retained earnings C. Suspense account
B. Accounts receivables D. Required new financing
28. What is the maximum dividend payout ratio consistent with not requiring external funds
for a firm with an ROE of 15%, a debt-equity ratio of 50%, and annual sales growth
objective of 9%?
A. Approximately 1% C. Approximately 20%
B. Approximately 12% D. Approximately 10%
29. During 2007, Balyuan Co. purchased P960,000 of inventory. The cost of goods sold for
2014 was P900,000, and the ending inventory at December 31, 2014 was P180,000.
What was the inventory turnover?
A. 6.4 C. 5.3
B. 6.0 D. 5.0
30. The COMPRE Company has made an investment in video and recording equipment
that costs P106,700. The equipment is expected to generate cash inflows of P20,000
per year. How many years will the equipment have to be used to provide the company
with a 10 percent average accounting rate of return on its investment?
A. 7.28 years C. 9.05 years
B. 5.55 years D. 4.75 years
31. A beverage stand can sell either softdrinks or coffee on any given day. If the stand
sells softdrinks and the weather is hot, it will make P2,500: if the weather is cold, the
profit will be P1,000. If the stand sells coffee and the weather is hot, it will make
P1,900; if the weather is cold, the profit will be P2,000. The probability of cold weather
on a given day at this time is 60%. The expected payoff if the vendor has perfect
information is
A. P3,900 C. P2,200
B. P1,360 D. P1,960
32. Higad Company’s bank requires a compensating balance of 20% on a P100,000 loan.
If the stated interest on the loan is 7%. What is the effective cost of the loan?
A. 5.83% C. 7.00%
B. 8.40% D. 8.75%

33. The balance sheet and income statement data for Candle Factory indicate the
following:
Bonds payable, 10% (issued 1998 due on 2022) P1,000,000
Preferred 5% stock, P100 par (no change during year) 300,000
Common stock, P50 par (no change during year) 2,000,000
Income before income tax for year 350,000
Income tax for year 80,000
Common dividends paid 50,000
Preferred dividends paid 15,000
Based on the data presented above, what is the number of times bond interest charges
were earned (round to one decimal place)?
A. 3.7 C. 4.5
B. 4.4 D. 3.5
34. Net sales are P6,000,000, beginning total assets are P2,800,000, and the asset
turnover is 3.0. What is the ending total assets balance?
A. P2,000,000 C. P1,200,000
B. P2,800,000 D. P1,600,000
35. With credit terms of 3/8, n/30, what is the customer’s payment decision date?
A. Three days after the invoice is received.
B. The 8th day is the customer’s decision date.
C. Anytime during the period, 8th to the 30th
D. The 30th day is the primary decision date
36. How long would it take for you to save an adequate amount for retirement if you
deposit P40,000 per year into an account beginning today that pays 12 percent per
year if you wish to have a total of P1,000,000 at retirement?
37. In the month of August, a firm had a total cash receipts of P10,000, total cash
disbursements of P8,000, depreciation expense of P1,000, a minimum cash balance of
P3,000, and beginning cash balance of P500. The ending cash balance for August
totals (DIRI UPOD IT MINIMUM CASH BALANCE)
A. P1,500 C. P5,500
B. P2,500 D. P3,500
38. A corporation is considering expanding operations to meet growing demand. With the
capital expansion the current accounts are expected to change. Management expects
cash to increase by P10,000, accounts receivable by P20,000, and inventories by
P30,000. At the same time accounts payable will increase by P40,000, accruals by
P30,000, and long-term debt by P80,000. The change in net working capital
A. An increase of P10,000
B. A decrease of P10,000

C. A decrease of P90,000
D. An increase of P90,000
For items 46-50
The financial statement of Black Barn Company are given below:
Black Barn Company
Income Statement
December 31, 2014
Sales P8,000,000
Cost of Goods Sold 5,260,000
Gross Profit 2,740,000
Selling and administrative expense 1,500,000
Operating Profit 1,240,000
Interest Expense 140,000
Income before Taxes 1,100,000
Tax Expense 440,000
Net Income 660,000
Black Barn Company

Balance Statement
December 31, 2014 and 2013
2014 2013
Cash P200,000 P50,000
Accounts Receivable 1,200,000 950,000
Inventory 1,840,000 1,500,000
Total Current Assets 3,240,000 2,500,000
Fixed Assets 3,200,000 3,000,000
Total Assets 6,440,000 5,500,000
Accounts Payable 800,000 720,000

Bank Loan 600,000 100,000
Total Current Liabilities 1,400,000 820,000
Bonds Payable 900,000 1,000,000
Total Liabilities 2,300,000 1,820,000
Common Stocks(13,000 shares) 300,000 300,000
Retained Earnings 3,840,000 3,380,000
Total Liabilities and Equity 6,440,000 5,500,000
The common shares are trading in the stock market for P40 each.
39. The firm’s leverage ratio for 2014 is
A. 1.65 C. 1.31
B. 1.56 D. 1.89
40. The firm’s time interest earned ratio for 2014 is
A. 8.86 C. 7.17
B. 9.66 D. 6.86
41. The firm’s average collection period for 2014 is (use 365 days)
A. 59.31 C. 55.05
B. 61.31 D. 49.05
42. The firm’s return on sales ratio for 2014 is (OPERATING PROFIT/SALES)
A. 15.50% C. 14.60%
B. 14.00% D. 16.50%
43. The firm’s return on equity ratio for 2014 is
A. 16.90% C. 15.63%
B. 14.00% D. 15.24%
A. The cash budget relies heavily on the sales forecast as an input.
B. Depreciation is included as cash outflow in a cash budget.
C. Pro forma statements report a firm’s actual performance during previous
reporting periods.
D. All balance sheet items typically remain a constant percent of sales, at least in
the short-term.
45. The issuance of new shares in a five-for-one split of common stock
A. Decreases the book value per share of common stock
B. Increases the book value per share of common stock
C. Increases the total shareholders’ equity
D. Decreases total shareholders’ equity
46. Marian Foundation, a tax-exempt organization invested P200,000 in a five-year project
at the beginning of 2012. Marian estimates that the annual cash savings from this will
amount to P65,000. The P200,000 assets will be depreciated over their five-year life on
the straight-line basis. On investment of this type, Marian’s desired rate of return is
12%. The net present value of the project is______.
A. P34,325 C. P90,000
B. P36,400 D. P125,000
47. Using the same information in the preceding item, what is time-adjusted rate of return
of the project?
A. Less than 12%
B. Less than 14%, but more than 12%
C. Less than 16%, but more than 14%
D. More than 16%
E. Examples of subjective methods of forecasting include trend forecasts and the
percent of sales method.

F. A sale forecast is a key ingredient in a firm’s financial planning
G. The first step in the financial planning process is to develop long-term financial
plans.
H. Financial planning is the process of projecting or estimating some future financial
eveny or condition of a firm.
49. Conservative working capital management strategies involve
E. Low risk, high return
F. High risk, high return
G. Low risk, low return
H. Moderate risk, moderate return
50. A firm has daily cash receipts of P100,000. A bank has offered to reduce the collection
time on the firm’s deposits by two days for a monthly fee of P500. If money market
rates are expected to average 6 per cent during the year, the net annual benefit from
having this service is
C. P3,000 C. P0
D. P12,000 D. P6,000
51. The following information regarding a change in credit policy was assembled by the
Germa Company. The company has a required rate of return of 10 per cent and a
variable cost ratio of 60 per cent.
Old Credit Policy New Credit Policy
Sales P3,600,000 P3,960,000
Average collection period 30 days 36 days
The pretax cost of carrying the additional investment in receivable, using 360-day year,
would be
C. P5,760 C. P8,160
D. P9,600 D. P 960
52. A collection of accounts receivable can be accelerated by the use of
C. Turnaround documents C. Banks drafts
D. A lockbox system D. Remittance advices
53. A small retail business would most likely finance its merchandise inventory with
C. Commercial paper C. A terminal warehouse receipt loan
D. A line-of-credit D. A chattel mortgage
54. Cantor Creations which has 250 business days per year, manufactures desks for
desktop workstations. The annual demand for the desks is estimated to be 5,000 units.
The annual cost of carrying one unit inventory is P10, and the cost to initiate a
production run is P1,000. Cantor has scheduled four equal production runs for the
coming year, the first to begin immediately. Currently, there are no desks on hand.
Assume the sales occur uniformly throughout the year and that production is

instantaneous. If Cantor Creations does not maintain a safety stock, the estimated total
carrying costs for the desks for the coming year is
C. P5,000 C. P4,000
D. P6,250 D. P10,250
55. In a comparison of 2012 with 2011, Lady Co.’s inventory turnover ratio increased
substantially although sales and inventory amounts were essentially unchanged. Which
of the following statements explains the increased inventory turnover ratio?
E. Cost of goods sold decreased.
F. Accounts Receivable turnover increased
G. Total assets turnover increased
H. Gross profit percentage decreased.
56. Kaay-ayo Corp’s current balance sheet reports the following shareholder’s equity:
5% cumulative preferred stock, par value
P100 per share; 2,500 shares issued and
outstanding P250,000
Common stock, par value P3.50 per
share; 100,00 shares issued and 350,000
outstanding
Additional paid-in capital in excess of par
value of common stock 125,000
Retained Earnings 300,000
Dividends in arrears on the preferred stock amount to P25,000. If the company was to
be liquidated, the preferred shareholders would receive par value plus a premium of
P50,000. The book value per share of common stock is
C. P7.75 C. P7.50
D. P7.25 D. P7.00
57. LOL, Inc. is considering the purchase of a P40,000 machine which will be depreciated
on a straight line basis over an eight-year period with no salvage value. The machine is
expected to generate net cash income before income taxes of P12,000 a year. Assume
that the income tax rate is 50%. What is the payback period?
58. An analysis of a company’s planned equity financing using the capital assets pricing
model would incorporate only the
E. Expected market earnings, the current Central Bank bond yield, and the beta
coefficient.
F. Expected market earnings and the price-earnings ratio
G. Current Central Bank bond yield, the price-earnings ratio, and the beta coefficient.
H. Current Central Bank bond yield and the dividend pay-out ratio.

59. Selected data from SIKLAB Corporation’s year-end financial statements are presented
below. The difference between average and ending inventory is immaterial.
Current ratio 2.0
Quick Ratio 1.5
Current Liabilities P120,000
Inventory turnover(based on cost of goods sold) 8 times
Gross profit margin 40%
SIKLAB’s net sales for the year were
C. P800,000 C. P480,000
D. P1,200,000 D. P240,000
60. If an investment project has a profitability index of 1.15, the
A. Project’s internal rate of return is 15%
B. Project’s cost of capital is greater than its internal rate of return.
C. Projects internal rate of return exceeds its net present value.
D. Net present value of the project is positive.
61. Critical Path Method is a technique for analyzing, planning, and scheduling large,
complex projects by determining the critical path from single time estimate for each
event in a project. The critical path:
A. Is the shortest path from the first event to the last event for a project.
B. Is an activity within the path that requires the most number of time.
C. Has completion that reflects the earliest time to complete the project.
D. Is the maximum amount of time an activity may be delayed without delaying the
total prject beyond its target completion time.
62. The Leyte Company has an equity cost of capital of 17%. The debt-to-equity ratio is 1.5
and cost of debt is 11%. What is the weighted average cost of capital, assuming the
tax rate is 33%?
C. 3.06% C. 16.97%
D. 13.40% D. 15.52%
63. The major benefit of diversification is to
E. Increase the expected return
F. Remove negative risk assets from the portfolio
G. Reduce the portfolio’s systematic risk
H. Reduce the expected risk
64. The most expensive source of financing for a firm is
C. Debt C. Retained Earnings
D. Preferred Stocks D. New common stocks
65. The financial manager is interested in the cash inflows and outflows of the firm, rather
than the accounting data, in order to ensure
C. Profitability C. The ability to pay dividends
D. The ability to acquire new assets D. Solvency

66. HAGUPIT Company’s December 31, 2010 balance sheet (in P’000,000) is given
below:
Cash P 10 Accounts Payable P 15
Accounts Receivable 25 Notes Payable 20
Inventories 40 Accrued Expenses 15
Long-term Debt 30
Net Fixed Assets 75 Common Stock 70
Total Assets P150 Total Liabilities and SHE P150
Sales during the past year were P100,000,000 and they are expected to rise 50 per
cent to P150,000,000 during 2011. Also, during last year fixed assets were being
utilized to only 85% of capacity, so HAGUPIT Company could have supported
P100,000,000 of sales with fixed assets that were only 85% per cent of last year’s
actual fixed assets. Assume that the HAGUPIT’s profit margin will remain constant at 5
per cent and that the company will continue to pay out 60 per cent of its earnings as
dividends. What amount of nonspontaneous, required new financing, will be needed
during the next year?
C. P55,500,000 C. P40,125,000
D. P52,500,000 D. P49,500,000
67. How should the following projects be listed in order of increasing risk?
E. New venture, replacement, expansion
F. Replacement, new venture, expansion
G. Replacement, expansion, new venture
H. Expansion, replacement, new venture
68. The relationship between payback period and IRR is that
A. A payback period of less than one-half the life of the project will yield an IRR lower
than the target rate.
B. The payback period is the present value factor for the IRR
C. A project whose payback period does not meet the company’s cutoff rate for
payback will not meet the company’s criterion for IRR
D. None of the above.
69. Information concerning the Blue Company’s common stock is as follows:
Per Share
Book value at December 31, 2014 P 12.00
Quoted market value on City stock exchange on December 31,
2014 9.00
Earnings for 2014 3.00
Par value 2.00
Dividend for 2014 1.00
What was the price-earnings ratio on common stock for 2014?
E. 2 to 1

F. 2.67 to 1
G. 3 to 1
H. 4 to 1
70. Thomas Company has an inventory conversion period of 60 days, receivables
conversion period of 45 days, and a payments cycle of 30 days. What is the length of
the firm’s cash conversion cycle?
C. 90 days C. 54 days
D. 75 days D. 105 days
71. Statement 1: As the volume of financing increases, the cost of the various type of
financing will decrease, reducing the firm’s weighted average cost of capital.
Statement 2: The weighted marginal cost of capital is an increasing function of the level
of total new financing.
C. False; True C. False; False
D. True; False D. True; True
72. Charlene owns stock in a company which has consistently paid a growing dividend
over the last five years. The first year Charlene owned the stock, she received P1.71
per share and in the fifth year, she received P2.89 per share. What is the growth rate of
the dividends over the last five years?
C. 7 per cent C. 14 per cent
D. 12 per cent D. 5 per cent
73. A bank lends a firm P500,000 for one year at 8 per cent and requires compensating
balances of 10 per cent of the face value of the loan. The effective annual interest rate
associated with this loan is
C. 8.9 per cent C. 8.0 per cent
D. 7.2 per cent D. 7.0 per cent
74. Refers to the potential use of fixed financial charges to magnify the effects of changes
in earnings before interest and taxes on the firm’s earnings per share.
E. Financial leverage
F. Operating leverage
G. Total leverage
H. Debt service
75. Which asset would the risk-averse financial manager prefer?
Asset A B C D
Initial Investment P15,000 P15,000 P15,000 P15,000
Annual Rate of Return
Pessimistic 8% 5% 3% 11%
Most likely 12% 12% 12% 12%
Optimistic 14% 13% 15% 14%
C. Asset A C. Asset C

D. Asset B D. Asset D
76. Statement 1: To be truly maketable, a security must have three basic characteristic: a
ready market, risk free, and safety of principal.
Statement 2: Since treasury bills are issued in bearer form, they are considered to be
virtually risk-free.
Statement 3: The market for a security should have both breadth and depth in order to
minimize the amount required to convert into cash.
E. False; True; True
F. True; True; True
G. False; False; True
H. False, True; False
77. For P450,000 Jasmine Corporation purchased a new machine with an estimated useful
life of five years with no salvage value. The machine is expected to produce cash flow
from operations, net of 40 percent income taxes, as follows:
First year P160,000
Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000
Jasmine will use the sum-of-the-years-digits method to depreciate the new machine as
follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000
Had Jasmine used straight-line method of depreciation instead of declining method,
what is the difference in net present value provided by the machine at a discount rate
of 12 percent?
E. Increase of P9,750
F. Decrease of P9,750
G. Increase of P24,376
H. Decrease of P24,376
78. If an asset costs P35,000 and is expected to have P5,000 salvage value at the end of
its ten-year life, and generates annual net cash inflows of P5,000 each year, the cash
payback period is
A. 8 years C. 7 years
B. 6 years D. 5 years
79. Under the judgmental approach for developing a pro-forma balance sheet, the “plug”
figure required to bring the statement into balance may be cancelled the

C. Retained earnings C. Suspense account
D. Accounts receivables D. Required new financing
80. What is the maximum dividend payout ratio consistent with not requiring external funds
for a firm with an ROE of 15%, a debt-equity ratio of 50%, and annual sales growth
objective of 9%?
C. Approximately 1% C. Approximately 20%
D. Approximately 12% D. Approximately 10%
81. During 2007, Balyuan Co. purchased P960,000 of inventory. The cost of goods sold for
2014 was P900,000, and the ending inventory at December 31, 2014 was P180,000.
What was the inventory turnover?
C. 6.4 C. 5.3
D. 6.0 D. 5.0
82. The COMPRE Company has made an investment in video and recording equipment
that costs P106,700. The equipment is expected to generate cash inflows of P20,000
per year. How many years will the equipment have to be used to provide the company
with a 10 percent average accounting rate of return on its investment?
C. 7.28 years C. 9.05 years
D. 5.55 years D. 4.75 years
83. A beverage stand can sell either softdrinks or coffee on any given day. If the stand
sells softdrinks and the weather is hot, it will make P2,500: if the weather is cold, the
profit will be P1,000. If the stand sells coffee and the weather is hot, it will make
P1,900; if the weather is cold, the profit will be P2,000. The probability of cold weather
on a given day at this time is 60%. The expected payoff if the vendor has perfect
information is
C. P3,900 C. P2,200
D. P1,360 D. P1,960
84. Higad Company’s bank requires a compensating balance of 20% on a P100,000 loan.
If the stated interest on the loan is 7%. What is the effective cost of the loan?
C. 5.83% C. 7.00%
D. 8.40% D. 8.75%
85. The balance sheet and income statement data for Candle Factory indicate the
following:
Bonds payable, 10% (issued 1998 due on 2022) P1,000,000
Preferred 5% stock, P100 par (no change during year) 300,000
Common stock, P50 par (no change during year) 2,000,000
Income before income tax for year 350,000
Income tax for year 80,000
Common dividends paid 50,000
Preferred dividends paid 15,000

Based on the data presented above, what is the number of times bond interest charges
were earned (round to one decimal place)?
C. 3.7 C. 4.5
D. 4.4 D. 3.5
86. Net sales are P6,000,000, beginning total assets are P2,800,000, and the asset
turnover is 3.0. What is the ending total assets balance?
C. P2,000,000 C. P1,200,000
D. P2,800,000 D. P1,600,000
87. With credit terms of 3/8, n/30, what is the customer’s payment decision date?
E. Three days after the invoice is received.
F. The 8th day is the customer’s decision date.
G. Anytime during the period, 8th to the 30th
H. The 30th day is the primary decision date
88. How long would it take for you to save an adequate amount for retirement if you
deposit P40,000 per year into an account beginning today that pays 12 percent per
year if you wish to have a total of P1,000,000 at retirement?
C. 12.2 years C. 10.5 years
D. 14.8 years D. 11.5 years
89. In the month of August, a firm had a total cash receipts of P10,000, total cash
disbursements of P8,000, depreciation expense of P1,000, a minimum cash balance of
P3,000, and beginning cash balance of P500. The ending cash balance for August
totals
C. P1,500 C. P5,500
D. P2,500 D. P3,500
90. A corporation is considering expanding operations to meet growing demand. With the
capital expansion the current accounts are expected to change. Management expects
cash to increase by P10,000, accounts receivable by P20,000, and inventories by
P30,000. At the same time accounts payable will increase by P40,000, accruals by
P30,000, and long-term debt by P80,000. The change in net working capital
E. An increase of P10,000
F. A decrease of P10,000
G. A decrease of P90,000
H. An increase of P90,000
For items 46-50
The financial statement of Black Barn Company are given below:
Black Barn Company
Income Statement
December 31, 2014
Sales P8,000,000

Cost of Goods Sold 5,260,000
Gross Profit 2,740,000
Selling and administrative expense 1,500,000
Operating Profit 1,240,000
Interest Expense 140,000
Income before Taxes 1,100,000
Tax Expense 440,000
Net Income 660,000
Black Barn Company

Balance Statement
December 31, 2014 and 2013
2014 2013
Cash P200,000 P50,000
Accounts Receivable 1,200,000 950,000
Inventory 1,840,000 1,500,000
Total Current Assets 3,240,000 2,500,000
Fixed Assets 3,200,000 3,000,000
Total Assets 6,440,000 5,500,000
Accounts Payable 800,000 720,000

Bank Loan 600,000 100,000
Total Current Liabilities 1,400,000 820,000
Bonds Payable 900,000 1,000,000
Total Liabilities 2,300,000 1,820,000
Common Stocks(13,000 shares) 300,000 300,000
Retained Earnings 3,840,000 3,380,000
Total Liabilities and Equity 6,440,000 5,500,000
The common shares are trading in the stock market for P40 each.
91. The firm’s leverage ratio for 2014 is
C. 1.65 C. 1.31
D. 1.56 D. 1.89
92. The firm’s time interest earned ratio for 2014 is
C. 8.86 C. 7.17
D. 9.66 D. 6.86
93. The firm’s average collection period for 2014 is (use 365 days)
C. 59.31 C. 55.05
D. 61.31 D. 49.05
94. The firm’s return on sales ratio for 2014 is
C. 15.50% C. 14.60%
D. 14.00% D. 16.50%
95. The firm’s return on equity ratio for 2014 is
C. 16.90% C. 15.63%
D. 14.00% D. 15.24%
96. The company accounts payable outstanding this year is P200,000. The cost of goods
available for sale this year is P550,000 which includes 50,000 purchase discount. The
transportation-in incurred in all purchases is P50,000. The annual average inventory is
P175,000 and the beginning inventory for the year is P100,000. The outstanding
accounts payable on the previous period is 450,000. What is the inventory turnover for
the year?
A. 1.82 C. 1.71
B. 1.45 D. 1.67
97. Using the same information in the preceding item, what is the average payment
period?
A. 90 days C. 180 days
B. 200 days D. 360 days
98. Using the same information in number 1, what would be the amount of cash paid to its
suppliers?
A. 450,000 C. 650,000
B. 250,000 D. 550,000
99. ONCE IS ENOUGH firm has actual sales in November of ₱1,000 and projected sales
in December and January of ₱3,000 and ₱4,000, respectively. The firm makes 10
percent of its sales for cash, collects 40 percent of its sales one month following the
sale, and collects the balance two months following the sale. The firm’s total expected
cash receipts in January
A. are ₱700. C. are ₱1,900.
B. are ₱2,100. D. cannot be determined
100. A good cash management techniques would support
A. decreasing collection float, increasing disbursement float, and decreasing the cash
conversion cycle.
B. decreasing collection float, increasing disbursement float, and decreasing the cash
turnover.
C. increasing collection float, decreasing disbursement float, and decreasing operating
cash.
D. decreasing collection float, increasing disbursement float, and increasing operating
cash.
101. Which of the following will cause a decrease in a company’s accounts
receivable turnover ratio?
A. Tighten credit standards
B. Enforce credit terms more aggressively
C. Ease enforcement of credit terms
D. Factor all accounts receivable
102. The present value of cash inflows for a particular project is P1,130,000. The said
cash inflows will be achieved if the project will be used for 10 years and the cost of the
project is P2,500,000. The discount rate of return of the projects is 12%. What is the
annual future cash inflows for the said project?
A. 113,000 C. 200,000
B. 250,000 D. 363,829
103. The cost of giving up a cash discount on a credit purchase is
A. added on to the price of the goods.
B. deducted from the price of the goods.
C. the implied interest rate paid in order to delay payment for an additional number
of days.
D. the true purchase price of the goods.

104. In JUST ONCE Co., the present value of ₱1,000 received at the end of year 1,
₱1,200 received at the end of year 2, and ₱1,300 received at the end of year 3,
assuming an opportunity cost of 7 percent, is
A. ₱2,500. C. ₱6,516.
B. ₱3,043. D. ₱2,856.
105. A firm has a cash conversion cycle of 60 days. Annual outlays are ₱12 million
and the cost of negotiated financing is 12 percent. If the firm reduces its average age of
inventory by 10 days, the annual savings is _________.
A. ₱ 28,800 C. ₱ 104,000
B. ₱ 40,000 D. ₱ 144,000
106. Total assets less net fixed assets equals
A. Gross Assets C. Depreciation
B. Current Assets D. Liabilities and Equity
107. A firm’s target or optimal capital structure is consistent with which one of the
following?
A. Maximum earnings per share
B. Minimum cost of debt
C. Minimum risk
D. Minimum weighted average cost of capital
108. If, just prior to a period of rising prices, a company changed its inventory
measurement method from LIFO to FIFO, the effect in the next period would be to
A. Increase both the current ratio and inventory turnover
B. Decrease both the current ratio and inventory turnover
C. Increase the current ratio and decrease inventory turnover
D. Decrease the current ratio and increase inventory turnover
109. Creditors and investors use financial analysis to:
A. Help determine the cause of a company’s financial problems
B. Predict the amount of expected returns, as well as the risks associated with
those returns
C. Help determine how to solve a company’s financial problems
D. It is restricted to a discussion and analysis of the historical data presented in the
financial statements
110. A firm has common stock with a market price of ₱55 per share and an expected
dividend of ₱2.81 per share at the end of the coming year. The dividends paid on the
outstanding stock over the past five years are as follows:
Year Dividend
1 ₱2.00
2 2.14
3 2.29
4 2.45
5 2.62
The cost of the firm’s common stock equity is
A. 4.1 percent. C. 12.1 percent.
B. 5.1 percent. D. 15.4 percent.
111. The cost of capital reflects the cost of funds
A. over a short-run time period. C. over a long-run time period.
B. at a given point in time. D. at current book values.
112. Because managing inventory is just like managing any other investment,
decisions about the level of inventory should be guided by
A. the value of the inventory.
B. the effect of inventory levels on sales.
C. a cost-benefit analysis.
D. the effect of inventory levels on customer relations.
113. Statement 1: In the EOQ model, the total cost is minimized at the point where
the order costs and storage costs are equal.
Statement 2: In the economic order quantity model, if carrying costs increase while all
other costs remain unchanged, the number of orders placed would be expected to
decrease.
A. Statement 1 is correct. C. Both statements are correct.
B. Statement 2 is correct. D. Both statements are incorrect.

114. The approximate after-tax cost of debt for a 15-year, 10 percent, ₱1,000 par
value bond selling at ₱950 with a tax rate of 40% is
A. 4.24% C. 10%
B. 6.36% D. 10.6%
115. ______ risk represents the portion of an asset’s risk that can be eliminated by
combining assets with less than perfect positive correlation.
A. Diversifiable C. Systematic
B. Nondiversifiable D. Total
116. The following information regarding inventory policy was assembled by the
EASY LANG Corporation. The company uses a 50-week year in all calculations.
Sales 10, 000 units per year
Order Quantity 2, 000 units
Safety Stocks 1, 300 units
Lead Time 4 weeks
The reorder point is

A. 100 units C. 1, 300 units
B. 2, 100 units D. 3, 300 units
117. If the firm decides to take the cash discount that is offered on goods purchased
on credit, the firm
Should
A. pay as soon as possible.
B. pay on the last day of the credit period.
C. take the discount no matter when the firm actually pays.
D. pay on the last day of the discount period.
118. A bank lends a firm ₱500,000 for one year at 8 percent and requires
compensating balances of
10 percent of the face value of the loan. The effective annual interest rate associated with
this loan is
A. 7.0 percent. C. 8 percent.
119. (Assume a 360 day year.) GIVE YOUR BEST Products is analyzing the
performance of its cash management. On the average, the firm holds inventory 65
days, pays its suppliers in 35 days, and collects its receivables in 15 days. The firm has
a current annual outlay of ₱1,960,000 on operating cycle investments. GIVE YOUR
BEST currently pays 10 percent for its negotiated financing. The firm’s cash conversion
cycle and operating cycle are
A. 85 and 100, respectively. B. 80 and 45, respectively.
B. 45 and 80, respectively. C. 100 and 85, respectively.
120. Improvements to cash management include all of the following EXCEPT a
reduction in
A. the cash turnover. C. the average age of inventory.
B. the cash conversion cycle. D. the average collection period.
C.
121. General Talc Mines has compiled the following data regarding the market value
and cost of the specific sources of capital.
Source of Capital After-Tax Cost
Long-term debt 8%
Ordinary Share Capital 19
Market value of ordinary shares ₱360,000
Market value of long-term debt ₱147,000
The weighted average cost of capital using market value weights is
A. 11.7 percent. C. 15.8 percent.
122. What is the market risk premium if the risk free rate is 5 percent and the
expected market return is given is 16%?
A. 10.5% C. 16.0%
B. 11.0% D. 16.5%

123. In the capital asset pricing model, the beta coefficient is a measure of _________ risk
and an index of the degree of movement of an asset’s return in response to a change in
_________.
A. diversifiable; the prime rate C. diversifiable; the bond index rate
B. nondiversifiable; the Treasury bill rate D. nondiversifiable; the market return
124. Asset P has a beta of 0.9. The risk-free rate of return is 8 percent, while the
return on the market portfolio of assets is 14 percent. The asset’s required rate of
return is
A. 5.4 percent. C. 10 percent.
125. Statement 1: Non-cash charges are expenses that do not involve an actual
outlay of cash during the period but are deducted on the income statement.
Statement 2: Operating financial plans are planned short-term financial actions and the
expected financial impact of those actions.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. Both statements are incorrect.
126. The amount of money that would have to be invested today at a given interest
rate over a specified period in order to equal a future amount is called
A. future value. C. future value interest factor.
B. present value. D. present value interest factor.
127. When preparing a Statement of Cash Flows, which of the following is not a
source of cash flows?
A. Cost of goods sold. C. Interest expense.
B. Depreciation. D. Taxes.
128. The company’s net sales for the year is P315,000. All sales made during the
year availed the 10% discount. Moreover, the cash account increased by P210,000.
The increase is due to the collections from customers. The Accounts Receivable
account as of December 31, 2016 shows P590,000. What is the accounts receivable
turnover for the year?
A. 0.53 C. 0.59
B. 0.67 D. 0.61
129. Statement 1: The use of differing accounting treatments – especially relative to
inventory and depreciation – can distort the results of ratio analysis, regardless of
whether cross-sectional or time-series analysis is used.
Statement 2: Inflationary effects typically have a great impact the larger difference in the
age of the assets of the firms being compared. Without adjustment, inflation tends to
cause older firms (with older fixed assets) to appear more efficient and profitable than
newer firms (with newer fixed assets).
A. True, False C. False, False
B. False, True D. True, True
For items 35 to 37
GREAT MINDS Corporation was formed last January 1, 2015. For the year ended,
December 31, 2016 the Shareholders’ Equity of the Statement of Financial Position Shows
a total of P25,000,000 of which P5,000,000 is for the share premium of ordinary shares,
P10,000,000 is for the retained earnings and the remainder is for Ordinary Shares Capital.
After the formation, the company issue shares at excess of par. The excess of par is
always P33.33 per share.
Furthermore, the retained earnings of the previous year amounted to P4,500,000 of which
P2,500,000 is appropriated.
130. What is the earnings per share for the year ended December 31, 2016?
A. P53.33 C. P20.00
B. P36.66 D. P13.75
131. The price earnings ratio of the company if the market price per share is P20.00
is
A. 1.45 C. 1.00
B. 0.38 D. 0.55

132. Assuming the company declared 10% of the retained earnings as cash
dividends, the dividend payout ratio is
A. 0.05 C. 0.13
B. 0.04 D. 0.09
133. The financing of the basic level of current assets by issuing commercial paper is
inconsistent with
A. The maximization of shareowners’ wealth
B. The objective of matching the maturities of assets and liabilities
C. The goal of minimizing the cost of debt financing
D. The expectation that long-term interest rates will decrease in the coming year.
134. As corporation grows from a small business into a larger, more profitable
business, the corporations tends to rely
A. More on trade credit because its unlimited availability
B. More on government secured loans which are available to the large more profitable
firms in the economy
C. More on bank credit and similar source rather than trade credit because trade credit is
not adequate to meet the financing needs beyond certain levels of growth
D. More on cash purchases due to the cash flow generated through collection of
accounts receivable.
135. A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm
might
A. Improve its collection practices, thereby increasing cash and increasing its current
and quick ratios
B. Improve its collection practices and pay accounts payable, thereby decreasing current
liabilities and increasing the current and quick ratios.
C. Decrease current liabilities by utilizing more long-term debt, thereby increasing
the current and quick ratios.
D. Increase inventory, thereby increasing current assets and the current and quick ratio
For items 41 to 45
J. Francisco Technologies is considering changing its credit terms from 2/15, net 30 to 3/10,
net 30, in order to speed collections. At present, 40 percent of Francisco’s customers take the
2 percent discount. Under the new terms, discount customers are expected to 50%.
Regardless of the credit terms, half of the customers who do not take the discount are
expected to pay on time, whereas the remainder will pay 10 days late. The change does not
involve a relaxation of credit standards; therefore, bad debt losses are not expected to rise
above their present 2% percent level. However, the more generous cash discount terms are
expected to increase sales from P2,000,000 to P2,600,000 per year. Francisco’s variable cost
ratio is 75%, the interest rate on funds invested in accounts receivable is 9%, and the firm’s
corporate tax rate is 40%.
136. What is the days sales outstanding before and after the change?
A. 22.5 days and 27 days, respectively
B. 27 days and 22.5 days, respectively
C. 24 days and 28 days, respectively
D. 28 days and 24 days, respectively
137. The discount costs after the change will be
A. 38,220 C. 15,680
B. 16,000 D. 39,000
138. The cost of carrying receivables if sales at P2,000,000
A. P10,125 C. P10,969
B. P 8,322 D. P 7,478
139. The bad debt loss of the new policy will be
A. P40,000 C. P52,000
B. P38,000 D. P22,000
140. Assuming all assumptions are correct, should the company change the credit
policy?

A. No, because the net income will decrease by P68,770
B. Yes, because the net income will increase by P68,770
C. Either policy the net income will not be affected.
D. Yes, because the net income will increase by 74,670 and taxes will decrease by
P45,846.
For items 46 to 50
ABC Company requires you to prepare a ratio analysis under accrual basis for the year 2016.
The following information were provided to you by the company.
ABC Company
Statement of Financial Position
December 31, 2015
Assets Liabilities and Shareholders’ Equity
Cash 500,000 Accounts Payable 500,000
Accounts Receivable 1,500,000 Salaries Payable 350,000
Allowance for Doubtful (150,000) Total Liabilities 850,000

Accounts
Inventory 600,000
Prepaid Rent 300,000 Capital Stock 1,400,000
Total Current Assets 2,750,000 Retained Earnings 1,500,000
Fixed Assets 1,500,000 Total SHE 2,900,000
Accumulated Depreciation (500,000)
Total Noncurrent Assets 1,000,000
Total Assets 3,750,000 Total Liabilities and 3,750,000

SHE
The company recorded all transaction under cash basis of accounting. The transactions
affects the cash balance during the year 2016.
 Cash collected from clients amounted P5,000,000.
 Cash payment for the purchases is P3,000,000.
 A cash receipt pertaining to other income is P250,000, of which, P55,000 is an interest
income of the previous year.
 Purchased an additional fixed assets amounting to P500,000. At the same time, sold
an old fixed assets with a book value of P350,000 and accumulated depreciation of
P45,000 for P500,000.
 Payment of the following expenses:
o Rental P450,000
o Salaries P150,000
o Advertising P 50,000
o Marketing P 10,000
o Utilities P 30,000
The company informed you that there were already written off receivables amounting to
P185,000. Moreover, it assumed that 10% of the outstanding receivables are uncollectible.
The following are the ending balances of the selected accounts:
Accounts Receivable P350,000

Merchandise Inventory P250,000
Prepaid Rent P250,000
Accumulated Depreciation P650,000
Salaries Payable P300,000
Accounts Payable P250,000
No transactions affected the capital stock account.

137. What is the gross profit margin ratio of company as of Dec. 31, 2016?
A. 22.00% C. 23.19%
B. 23.17% D. 24.76%
138.The current ratio of the company for Dec. 31, 2016.

A. 4.00 C. 5.18
B. 4.22 D. 5.23
139.The 2016 return on assets would be

A. 9.71% C. 9.70%
B. 10.00% D. 9.39%
140The 2016 return on equity would be
A. 9.78% C. 11.88%
B. 12.00% D. 10.10%
141.The accounts receivable turnover as of 2016.
A. 4.34 times C 4.36 times
B. 4.38 times D.4.40 times

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1. Which of the following statement is true?

A. Examples of subjective methods of forecasting include trend forecasts and the

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Black Barn Company

Accounts Payable 800,000 720,000

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Black Barn Company

Accounts Payable 800,000 720,000

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The reorder point is

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Assets Liabilities and Shareholders’ Equity

Cash 500,000 Accounts Payable 500,000

Accounts Receivable 1,500,000 Salaries Payable 350,000

Allowance for Doubtful (150,000) Total Liabilities 850,000

Prepaid Rent 300,000 Capital Stock 1,400,000

Total Current Assets 2,750,000 Retained Earnings 1,500,000

Fixed Assets 1,500,000 Total SHE 2,900,000

Accumulated Depreciation (500,000)

Total Noncurrent Assets 1,000,000

Total Assets 3,750,000 Total Liabilities and 3,750,000

Accounts Receivable P350,000

No transactions affected the capital stock account.

138.The current ratio of the company for Dec. 31, 2016.

139.The 2016 return on assets would be

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