QUEZON CITY UNIVERSITY

BATASAN CAMPUS
MIDTERM EXAMINATION
FINANCIAL MANAGEMENT

Name: ______________________________________________________ Score: ___________

Section: _____________________________________________________ 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 a perpetuity, 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 EAR 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. During the final years of a mortgage loan, most of the payments go toward the paying of 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. Amortized loans usually have payments that vary periodically over the loan’s life.
____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
C. acid test or quick ratio
D. A and C
E. B and C

2. __________ provides a snapshot of the financial condition of the firm at a particular time.
A. The balance sheet
B. The income statement
C. The statement of cash flows
D. All of the above
E. None of the above

For numbers 3-8 , kindly refer to below table:

BLACK BARN COMPANY

Income Statement (2017)

Sales P 8,000,000
Cost of Goods Sold 5,260,000
Gross Profit 2,740,000
Selling and Admin Expenses 1,500,000
Operating Profit 1,240,000
Interest Expense 140,000
Income Before Tax 1,100,000
Tax Expense 440,000
Net Income 660,000

Balance Sheet 2017 2016

Cash ₱200,000 ₱50,000
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 1

Accounts Payable 800,000 720,000

Interest Expense 140,000
Income Before Tax 1,100,000
Tax Expense 440,000
Net Income 660,000

Balance Sheet 2017 2016

Cash ₱200,000 ₱50,000
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 Stock (130,000 shares) 300,000 300,000
Retained 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

3. Refer to the financial statements of Black Barn Company. The firm's current ratio for 2017 is _____.
A. 2.31
B. 1.87
C. 2.22
D. 2.46
E. none of the above

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. 15.5
B. 14.6
C. 14.0
D. 15.0
E. 16.5

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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. is worth less than the future value
D. both a. and b. above are true

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

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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.
c. An increase in net fixed assets.
d. Statements a and b are correct.
e. All of the statements above are correct

PROBLEMS (10PTS)

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. Vice Ganda is selling an apartment building for P2,000,000. She will pay 10% down and P15,000 a
year for 10 years. What is the real purchase price if John could get an interest rate of 5% on invested
money? _______________

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: ______________________

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6. How many years does it take money invested at 9% to double? ________________

7-8. Get the Present Value of the ff:

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

i=3%
t = 7 yrs
PV = _________________

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

i = 4 % ; semi-annual
t = 2 yrs
PV = _________________

9-10. Get the Future Value of the ff:

a) R = P150,000 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 = _________________