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QUEZON CITY POLYTECHNIC UNIVERSITY

BATASAN CAMPUS

FINANCIAL MANAGEMENT
MIDTERM EXAMINATION

Name: ________________________________________________________________ Score: ___________

Section: ______________________ Professor: ______________________________ Date : ___________

TRUE-FALSE QUESTIONS (15PTS)

____1. All persons will have the identical opportunity cost rate.
____2. A perpetuity may be thought of as an annuity that continues forever.
____3. The present value of a future amount will be higher with a higher interest rate.
____4. Present value and future value problems in real-life often require combining two or more time value problems.
____5. Most annuities are categorized as annuities due.
____6. In order to calculate the future value of an annuity, one need only to consult an existing table.
____7. Lenders prefer less frequent compounding; borrowers prefer more frequent compounding.
____8. When the compounding period is one year and the interest is compounded annually, the EIR and the nominal rate
of interest will be the same.
____9. Problems involving uneven streams of payments require that each payment be handled as an individual amount.
____10. The difference of computed present value and future value of total payment will be your accumulated interest.
____11. The present value of a future amount is smaller when interest rates decrease.
____12. When no compounding period is mentioned, quarterly compounding should be assumed.
____13. The frequency of compounding affects the actual amount of interest being paid.
____14. Liquidity ratio is the measure of efficiency with which assets are converted to sales or cash.
____15. Ordinary annuity has payments that occur at the end of the time periods.

MULTIPLE CHOICE QUESTIONS (25PTS)

1. An example of a liquidity ratio is _______.

A. fixed asset turnover
B. current ratio BLACK BARN COMPANY
C. acid test or quick ratio
D. A and C Income Statement (2017)
E. B and C Sales P 8,000,000
Cost of Goods Sold 5,260,000
2. __________ provides a snapshot of the financial condition ofGross Profit
the firm at a particular time. 2,740,000
A. The balance sheet Selling and Admin Expenses 1,500,000
B. The income statement Operating Profit 1,240,000
C. The statement of cash flows Interest Expense 140,000
D. All of the above Income Before Tax 1,100,000
E. None of the above Tax Expense 440,000
Net Income 660,000
For numbers 3-8 , kindly refer to below table:

BLACK BARN COMPANY Balance Sheet 2017 2016

Cash ₱200,000 ₱50,000
Income Statement (2017) Accounts Receivable 1,200,000 950,000
Sales P 8,000,000 Inventory 1,840,000 1,500,000
Cost of Goods Sold 5,260,000 Total Current Assets 3,240,000 2,500,000
Gross Profit 2,740,000 Fixed Assets 3,200,000 3,000,000
Selling and Admin Expenses 1,500,000 Total Assets 6,440,000 5,500,000
Operating Profit 1,240,000
Interest Expense 140,000 Accounts Payable 800,000 720,000
Income Before Tax 1,100,000
Bank Loan 600,000 100,000
Tax Expense 440,000
Total Current Liabilities 1,400,000 820,000
Net Income 660,000
Bonds Payable 900,000 1,000,000
Total Liabilities 2,300,000 1,820,000
Common Stock (130,000 shares) 300,000 300,000
Balance Sheet 2017 2016
Retained Earnings 3,840,000 3,380,000
Cash ₱200,000 ₱50,000
Total Liabilities & Equity 6,440,000 5,500,000
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 Note: Common Share are trading
Total Assets 6,440,000 5,500,000 in stock market for P40 each

Accounts Payable 800,000 720,000

3. Refer to the financial statements of600,000
Bank Loan
Black Barn Company.
100,000
The firm's current ratio for 2017 is _____.
A. 2.31
Total Current Liabilities 1,400,000 820,000
B. 1.87
Bonds Payable 900,000 1,000,000
C. 2.22
Total Liabilities 2,300,000 1,820,000
D. 2.46 Stock (130,000 shares)
Common 300,000 300,000
E. none of
Retained the above
Earnings 3,840,000 3,380,000
Total Liabilities & Equity 6,440,000 5,500,000

Note: Common Share are trading

in stock market for P40 each
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4. Refer to the financial statements of Black Barn Company. The firm's quick ratio for 2017 is _____.
A. 1.69
B. 1.52
C. 1.23
D. 1.07
E. 1.00

5. Refer to the financial statements of Black Barn Company. The firm's times interest earned ratio for 2017 is
_____.
A. 8.86
B. 7.17
C. 9.66
D. 6.86
E. none of the above

6. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2017 is _____.
A. 2.04
B. 2.58
C. 2.97
D. 1.58
E. none of the above

7. Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2017 is _____.
A. 1.79
B. 1.63
C. 1.34
D. 2.58
E. none of the above

8. Refer to the financial statements of Black Barn Company. The firm's return on sales ratio for 2017 is _____
percent.
A. 8.25
B. 8.52
C. 12.12
D. 15.0

9. The future or present value of an amount depends upon:

A. the interest rate.
B. the number of periods.
C. number of times per year compounding occurs.
D. all of the above.

10. In which case will an investor receive the most interest:

A. 10%, compounded annually.
B. 10%, compounded monthly.
C. 10%, compounded continuously.
D. 10%, compounded daily.

11. Annuities:
A. are a stream of equal payments at unequal time intervals.
B. are a stream of equal payments at equal time intervals.
C. are a stream of equal payments that continue forever.
D. all of the above.
E. none of the above.

12. At 12% interest compounded quarterly for 5 years, what is the interest rate and the number of periods that will be
computed before a present or future value table can be used?
A. 12%, 5 periods
B. 6%, 10 periods
C. 3%, 20 periods
D. 4%, 15 periods

13. The basic rule of the time value of money is:

A. investments will always be worth more tomorrow than they are today
B. it’s always wiser to save a dollar for tomorrow than to spend it today
C. a dollar in hand today is worth more than a dollar promised at some time in the future
D. all of the above express an aspect of the basic rule of time value of money

14. The present value of a future amount:

A. will always be less than the future amount
B. can be calculated precisely if the discount rate and number of periods is known
C. can be determined only through table of factors
D. both a. and b. above are true
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15. Which of the following formulas is the correct way to express a future value two years into the future based on a present
value and an interest rate? FV2 = ___
A. PV (1 + i) + PV (1 + i)
B. PV 2(1 +i)
C. PV ( 1 + i)2
D. all of the above are correct

16. If you want to know how much money you will have at the end of 15 years if you make quarterly deposits in a bank
that pays 6% interest compounded quarterly, you should go to Table A-3 and look up the value for t = _____ and
i = _____.
A. 15, 6%
B. 15, 1.5%
C. 60, 6%
D. 60, 1.5%

17. When comparing an annuity due with an ordinary annuity with the same payment and duration, the annuity due will
always have a _______ present value and will always have a _______ future value.
A. higher; higher
B. higher; lower
C. lower, higher
D. lower, lower

18. A perpetuity:
A. has infinite value because the payments continue forever
B. can be valued (PV) if the payment amount and interest rate are known
C. don’t exist in the financial world
D. none of the above are true

19. Which of the following could explain why a business might choose to organize as a corporation rather than as a
sole proprietorship or a partnership?
a. Corporations generally face fewer regulations.
b. Corporations generally face lower taxes.
c. Corporations generally find it easier to raise capital.
d. Corporations enjoy unlimited liability.
e. Statements c and d are correct.

20. Which of the following statements is true?

a. One of the benefits of incorporating your business is that you become entitled to receive unlimited liability.
b. Sole proprietorships are subject to more regulations than corporations.
c. Sole proprietorships do not have to pay corporate tax.
d. All of the statements above are correct.
e. None of the statements above is correct.

21. Which of the following statements is most correct?

a. Corporations generally face fewer regulations than sole proprietorships do.
b. Corporate shareholders have unlimited liability.
c. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship.
d. All of the above statements are correct.
e. None of the above statements is correct.

22. The primary goal of a publicly-owned firm interested in serving its stockholders should be to:
a. Maximize expected total corporate profit.
b. Maximize expected EPS.
c. Minimize the chances of losses.
d. Maximize the stock price per share.
e. Maximize expected net income.

23. Which of the following statements is most correct?

a. One disadvantage of forming a corporation is that your shareholders have limited liability.
b. Relative to sole proprietorships, corporations generally face more regulations, but find it easier to raise capital.
c. Bondholders generally want managers to select risky projects, but shareholders prefer that managers select safe
projects.
d. Statements a and b are correct.
e. All of the statements above are correct.

24. Culver Inc. has earnings after interest but before taxes of P300,000. The company’s times interest earned ratio is
7.00. Calculate the company’s interest charges.
a. P42,857
b. P2,100,000
c. P48,257
d. P300,000

25. All else being equal, which of the following will increase a company’s current ratio?
a. An increase in accounts receivable.
b. An increase in accounts payable.
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c. An increase in net fixed assets.

d. Statements a and b are correct.
e. All of the statements above are correct

PROBLEMS (40PTS; 2 pts each)

1. Laluan Corporation started making sinking fund deposits of P20,000 today. Its bank pays 6% compounded semi-
annually and the payments will be made every six months for 20 years. What will the fund be worth at the end
of that time?________________

2. Given the following information, calculate the Market Price per share : __________________
Net Income After Tax = P200,000 EPS = P2.00
Common Shareholder’s Equity = P2,000,000 Market/Book ratio = 0.2

3-5. How much must Willie put into the bank today if he wants P5,000,000 in 5 years at 24% compounded
3.) annually: _____________________
4.) semi-annually: _________________
5.) monthly: ______________________

6. If the given NIR is 12% compounded quarterly, how much will be its EIR for 1 yr? ________________

7-9. Get the Present Value of the ff:

a) FVOA= P3,500,000 made in equal payments

i=3%
t = 7 yrs
PV = _________________

b-c) R = P250,000 first payment was made today

i = 4 % ; semi-annual
t = 2 yrs
PV = __________________
Discount = ______________

10-12. Get the Future Value of the ff:

a) R = P100,000 first payment made at the end of the year

i = 7.5 %
t = 6 yrs
FV = _________________

b) R = P50,000 first payment made at the beg of 1st year

i = 12 %
t = 5 yrs
FV = _________________

c) R = P500,000
i = 0.075
t = 8 yrs
FVAD = ________________
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13-15. Selected data from the year end financial statement of World Cup Corp. are presented below. The difference of
ending and beginning inventories are IMMATERIAL (you may just refer to the ending balance, no need to average)

Current Ratio (as of Dec. 31, 2018) 2.0

Quick ratio 1.5
Current Liabilities P 600,000
Inventory turnover (based on cost of sales) 8 times
Gross Profit Margin 40 %

Find the ff:

13. Inventory as of Dec 31, 2018 : ______________________

14. Cost of Goods Sold at Dec 31, 2018: __________________

15. Sales reported on Dec 31, 2018: ______________________

16-20. Fill the missing balances.

Sales P xxxxxxxx 100%

-Cost of Sales 12,000,000
Gross Profit 8,000,000 (16) Gross Profit Margin
-Operating Expenses (17)
Earnings Bef. Interest and Taxes 6,500,000
-Interest Expense __ (19) ____________
Earning before Tax xxxxxxxx
-Tax Expense (20)
Net Income After Tax xxxxxxxx

Additional Information :
Times Interest Earned Ratio = 20 times
Net Profit Margin = 30 %

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– Jim Rohn