FINANCIAL MANAGEMENT

FINAL EXAMINATION-PT I-MCQ'S THEORY

SY 2019-2020: 1ST SEMESTER

Directions: Write the letter of the correct answer.

Date of submission: October 23, 2019

1 Firms with high degree of operating leverage:

A. Will have a more significant shift in income as sales volume

changes
B. Have lower fixed cost
C. Have low contribution margin
D Are less dependent on volume to add profits.

2 At the break-even point, fixed cost is always

A. less than the contribution margin

B. equal to the contribution margin
C. more than the contribution margin
D. more than the variable cost

3 If the company is operating at a loss,

A. fixed cost are greater than sales

B. selling price is lower than the variable cost per unit
C. selling price
fixed cost peris less
unit isthan the average total cost per unit.
D. greater than variable

4
Which of the following statements regarding financial analysis is correct?

A. Financial analysis will show how a company is guaranteed to

perform in the future.
B. Financial analysis should not be relied upon as an indicator of
future performance.
C. Financial analysis should be performed only by managers and
creditors
D. Financial analysis provides supplemental information not
provided directly by the financial statements.

5
Which of the following is not a limitation of financial statement analysis?

A. The cost basis

B. The uses of estimates
C. The diversification of firms
D. The availability of information

6 Analyzing financial statement account balance over time for the same company is
called:
 A. vertical analysis
B. horizontal analysis
C. common-size analysis
D. price analysis

7 Statements in which all items are expressed only in relative terms (percentage of
a base) are termed:

A. vertical statements
B. horizontal statements
C. fund statements
D. common-size statements

8 The primary concern of short-term creditors when assessing the strength of a firm
is the entity's

A. short-term liquidity
B. profitability
C. market price of stock
D. leverage

9 Which of the following is the best measure of liquidity?

A. debt-to-equity ratio
B. times-interest-earned ratio
C. return on assets ratio
D. acid-test ratio

10 Trend analysis allows a firm to compare its performance to:

A. other firms in the industry

B. other time periods within the firm
C. other industries
D. none of the above

11 Which of the following would best indicate that the firm is carrying excess
inventory ?

A. a decline in the current ratio

B. stable current ratio with declining quick ratio
C. a decline in day's sale inventory
D. a rise in total asset turn-over

12
The present and prospective stock holders are primarily concerned with a firm's

A. profitability
B. liquidity
C. leverage
D. risk and return

13
A general rule to use in assessing the average collection period is:
A. that is should not exceed 30 days
B. it can be any length as long as the customer continues to buy
merchandise
 it can be any length as long as the customer continues to buy
merchandise
C. that it should not greatly exceed the discount period.
D. that it should not greatly exceed the credit term

14
Which of the following is usually not a feature of cumulative preferred stock?
A. Has a priority over common stock with regards to earnings
B. Has a priority over common stock with regards to assets
C. Has voting rights
D. Has the right to receive dividends in arrears before common
stock dividends can be paid.

15 Which of the following actions will increase a firm's current ratio if it is now
less than 1.0?

A. Convert marketable securities to cash

B. Pay accounts receivable with cash
C. Buy inventory with short-term credit (accounts payable)
D. Sell inventory at cost

16 Companies A and B are in the same industry and have a similar characteristics
except that Company A is more leveraged than Company B. Both companies have the
same income before interest and taxes and the same total assets. Based on this
information we could conclude that

A. Company A has higher net income than Company B.

B. Company A has lower return on assets than Company B.
C. Company A is more risky than Company B.
D. Company A has a lower debt ratio than Company B.

17 Ratios are used as tools in financial analysis

A. instead of horizontal and vertical analyses

B. because they can provide information that many not be apparent
from inspection of the individual components of a particular
ratio
C. because every single ratio by itself is quite meaningful
D. because they are prescribed by PFRS.

18 If a company raises its target peso profit, its

A. break-even point rises

B. fixed cost increase
C. required total contribution margin increases
D. selling price rises

19
The margin of safety is a key concept of CVP analysis. The margin of safety is the

A. contribution margin rate

B. difference between budgeted contribution margin and actual
contribution margin
C. difference between budgeted contribution margin and break-even
contribution margin
 D. difference between budgeted sales and breakeven sales

20 If variable cost as a percentage of sales increases, the

A. contribution margin percentage increases

B. selling price increases
C. break-even point in pesos increases
D. fixed cost decreases

21 As projected net income increases, the

A. degree of operating leverage declines

B. margin of safety stays constant.
C. break-even point goes down
D. contribution margin ratio goes up.

22 As the company sells more of higher contribution margin product in relation to

other products, the

A. break-even in units declines

B. margin of safety stays constant
C. break-even point goes up
D.
weighted average contribution margin ratio remains unchanged.

23 With respect to fixed cost, CVP analysis assumes that fixed cost:

A. per unit remains constant as volume changes

B. in total remains constant from one period to the next
C. in total varies directly with volume
D. in total remains constant across changes in volume

24 The opportunity cost of making a component part in a factory with excess capacity
for which there is no alternative use is

A. the total manufacturing cost of the component

B. the total variable cost of the component
C. the fixed manufacturing cost of the component
D. zero

25 What is the first step in the decision-making process?

A. Specify the criteria by which the decision to be made

B. Consider the strategic issues regarding the decision context
C. Perform an analysis in which the relevant information is
developed and analyzed
D. Compare the alternatives

26 The setting of objectives and the identification of methods to achieve those

objectives is called

A. planning
B. controlling
C. decision making
D. performance evaluation
27 The main focus of managerial accounting is

A. decision making
B. preparation of financial statements
C. preparation of budgets
D. documenting of cashflows.

28
Which of the following is/are true regarding financial and managerial accounting?

I. Both are mandatory.

II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather than just
looking at the organization as a whole.
IV. Both are geared to the future, rather than the past.

A. I, II, III, IV
B. Only II, III, And IV
C. Only II and III
D. Only II

29
Which of the following is included in the day-to-day work of the management team?

A. decision making
B. planning
C. controlling
D. all of the above

30 Internal reports should be communicated

A. daily
B. monthly
C. annually
D. as needed