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FINALS EXAM - FM Special SC
FINALS EXAM - FM Special SC
BATASAN CAMPUS
FINANCIAL MANAGEMENT
FINALS EXAMINATION
_____1. Following are the ways of accelerating collection of accounts receivable, except:
a. shorten credit term
b. minimize negative float
c. age of accounts receivable
d. offer special discounts to those who pay promptly
_____3. All of the following are valid reasons for a business to hold cash and marketable securities
except to:
a. Satisfy compensating balance requirements
b. Maintain adequate cash needed for transactions
c. Meet future needs
d. Earn maximum returns on investment assets
_____4. The amount of cash that the firm keeps on hand in order to take advantage of any bargain
purchases that may arise due to fluctuating currency rates is referred to as its
a. Transactions balances c. Precautionary balances
b. Compensating balance d. Speculative balance
_____5. A group of individuals got together and purchased all of the outstanding shares of common
stock of DL Smith, Inc. What is the return that these individuals require on this investment called?
a. Dividend yield c. capital gains yield
b. Cost of equity d. cost of capital
_____6. Starrs Company has current assets of P300,000 and current liabilities of P200,000. Starrs
could increase its working capital by the
a. Prepayment of P50,000 of next year’s rent
b. Refinancing of P50,000 of short term debt with long term debt
c. Purchase of P50,000of temporary investments
d. Collection of P50,000 accounts receivable
_____7. When a company analyzes credit applicants and increases the quality of the accounts
rejected, the company is attempting to
a. Maximize profits
b. Increase bad-debt losses
c. Increases the average collection period
d. Maximize profits
_____9. The ratio of analytical measurements which measures the productivity of assets regardless
of capital structure is
a. Current ratio c. Quick Ratio
b. Debt Ratio d. Return on Total Assets
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_____10. In 2017, Clark Corp.’s net income was P800,000 and in 2018 it was P200,000. What is the
percentage increase in net income must the company achieve in 2019 to offset the 2018 decline in
net income?
a. 60% c. 400%
b. 600% d. 300%
_____13. Interest paid (earned) on both the original principal borrowed (lent) and previous interest
earned is often referred to as __________.
a. present value
b. simple interest
c. future value
d. compound interest
______15. A certified public accountant’s scope of management services is broad and covers all of the
following except:
a. Change management engagements
b. Computerization engagements
c. Audit engagements
d. Re-engineering jobs
______16. 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.
______17. At 12% interest compounded semi-annually 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
______18. Given the following information, calculate the market price per share of WAM Inc.
Net Income P200,000 Earnings per share P2.00
Shareholder’s equity P2,000,000 Market to Book Ratio 0.20
a. P20.00 b. P8.00 c. P4.00 d. P2.00
______19. An investor was expecting a 15% return on his portfolio with a beta of 1.25 before the
market risk premium increased from 6% to 9%. Based on the change, what return will now be
expected on the portfolio?
a. 18.75% b. 18.00%. c. 22.50%. d. 15.00%
______20. In EOQ model, the return on capital that is foregone when it is invested in inventory is a/n
a. order costs c. excluded in the EOQ computation
b. carrying costs d. irrelevant costs
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PROBLEMS (3 points per item)/60
Problem1.
IU Corporation is estimating its WACC using the following information below:
- Its capital structure consists of equity equally divided for preferred and common shares,
and the 20% portion is for the debt.
- The company has a 10-year outstanding bonds with 11% coupon rate trading at par.
- The market premium is at 5% and the market rate of return is 12.5%. Stocks beta is 1.25
- The preferred stocks are currently selling at P250 each with constant growth rate of 3%.
Last dividend paid 2 years ago was P5.00 and the cost of issuance is 20% of the price.
- The company’s after tax portion is 55%
Problem2.
You are to manage the P5 million portfolio of HOTEL DEL LUNA Inc. that has a beta of 1.2 and a
required rate of return of 21.7%. The current risk free rate is 5.5%.
_________________a. What is the market risk premium?
_________________b. Assume that you have received another P1,000,000 and invest it in a stock with a
beta of 2.25. What is the new beta of the portfolio?
_________________c. Compute for the new required return after the additional investment was made.
Problem3.
Use following data provided below:
Annual usage 43,800 units
Days in a year 365 days
Reorder Point 3,000 units
Problem4.
Consider the following information for the financial asset A.
State of the World State 1 State 2 State 3
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Problem5.
The following data are taken from the records of TUPOYNTPAYB Corp. for the year ended Dec 31,
2019. (use 360-day year).
Problem6.
Given the below were data for SANA ALL Corp. for inventory purchases made during Nov 2019.
Transportation Cost P 5,000
Storage Costs 7,000
Cost of Insurance 3,000
Administration Cost 1,000
Inspecting Cost 2,000
Number of units per order 800
Orders made during the year. 20