Name: Score

Year/Section/Subject: Date:

Direction: Encircle the letter of the correct answer. No erasures. Write your solutions in 14
or 16 column worksheet.

1. Last year’s asset turnover of Johvic Company was 3.0. This year, the company’s sales
increased by 25% and average total assets decreased by 5%. What is this year’s asset
turnover?
a. 3.9 c. 3.4
b. 3.6 d. 3.1

2. During the year, Tindugan Company earned net income of P60,000. For next year, it has
a capital budget of P80,000. If the company’s plowback ratio is 30%, how much external
funding is needed for the capital investment project?
a. P80,000 c. P56,000
b. P62,000 d. P98,000

3. Belle Corporation provided the following data are for the year ended Dec. 31, 2017:
Net credit sales P576,000
Average materials inventory 8,000
Average finished goods inventory 12,000
Average accounts receivable 80,000
Average accounts payable 5,000
Net credit purchases 120,000
Raw materials used 96,000
Gross profit rate 25%
Number of days in a year 360 days

What is the average number of days in the company’s operating cash conversion cycle?

a. 50 days c. 105 days

b. 75 days d. 45 days

4. Using the data presented below, calculate the cost of goods sold for the Alpha
Corporation for the year just ended.
Current ratio 3.5
Acid test ratio 3.0
Current liabilities at year-end P600,000
Beginning inventory P500,000
Inventory turnover 8.0

a. P1,600,000 c. P3,200,000
b. P2,400,000 d. P6,400,000

Finals_Quizzes_Problems Page 1
For Nos. 5 to 6:

Ricky Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-
operated lathe. Information on the existing lathe and the computer-operated lathe follow:
Computer-
Existing Lathe operated
Lathe
Cost P100,000 P300,000
Accumulated depreciation   60,000        0
Salvage value now   20,000
Salvage value in 4 years        0   60,000
Annual depreciation   10,000   75,000
Annual cash operating costs  200,000   50,000
Remaining useful life  4 years  4 years

5. What is the payback period for the computer-operated lathe?

a. 1.87 years c. 3.53 years
b. 2.00 years d. 3.29 years

6. If the company uses 10 percent as its discount rate, what is the net present value of the
proposed new lathe purchase? (Round present value factors to four decimal places)
a. P236,465 c. P195,485
b. P256,465 d. P30,422

7. RPI Corporation bought a piece of machinery. Selected data is presented below:

Useful life 6 years

Yearly net cash inflow P45,000
Salvage value -0-
Internal rate of return 18%
Cost of capital 14%

The initial cost of the machinery was (round present value factor to four decimal places)
a. P157,392. c. P165,812.
b. P174,992. d. impossible to determine from the information given.

8. Tanya Corporation issued preferred stocks for P120 per share. The issue price is P20
more than the stock’s par value. The company incurred underwriting fees of P10 per
share. The stocks will earn annual dividends of P12 per share. If the tax rate is 30%, the
cost of capital (preferred stocks) is
a. 10% c. 7.42%
b. 12% d. 10.91%

Finals_Quizzes_Problems Page 2
 9. At the beginning of the year, Djorn Corporation purchased a new equipment for P360,000.
The machine has an estimated useful life of four (4) years with no salvage value. It is
expected to produce cash flows from operations, net of income taxes of 32%, as follows:
Year 1 P128,000
2 112,000
3 144,000
4 96,000
5 80,000

Djorn Corporation uses the sum-of-the-years-digits method (SYD) in computing depreciation

of its depreciable assets. Using SYD, the new equipment will be depreciated as follows:
Year 1 (P360,000 x 4/10) P144,000
2 (P360,000 x 3/10) 108,000
3 (P360,000 x 2/10) 72,000
4 (P360,000 x 1/10) 36,000

The company’s cost of capital is 10%. The present value factors at 10% are as follows:
End of Year 1 0.909
2 0.826
3 0.751
4 0.683
Total, 4 years 3.170

If Djorn Corporation used the straight-line method of depreciation instead of the SYD method,
the net present value provided by the equipment would increase (decrease) by:
a. P13,464 c. (P4,308.48)
b. (P13,464) d. P4,308.48

10. Harold Co. is considering an investment in a capital project. The sole outlay will be
P716,417.90 at the outset of the project and the annual net after-tax cash inflow will be
P216,309.75 for 6 years. The present value factors at Harold’s 8% cost of capital are:
Year PV Factors
1 0.926
2 0.857
3 0.794
4 0.735
5 0.681
6 0.630

What is the break-even time (BET)?

a. 3.31 years c. 5.00 years

b. 4.00 years d. 6.00 years

Finals_Quizzes_Problems Page 3
 11. The investment banking firm of M and Associates will use a dividend valuation model to
appraise the shares of the L&L Corporation. Dividends (D) at the end of the current year
will be P1.20. The growth rate (g) is 9% and the discount rate (K) is 13%?

What should be the price of the stock to the public?

a. P28.75 c. P30.00
b. P31.50 d. P29.00

12. BSR Co, has an opportunity to purchase a new conveyor line for P250,000. They can
borrow P200,000, paying P50,000 down with annual payments for five years and an
interest of 15%. They also have an opportunity to lease the line for P65,000 a year. The
present value of an annuity of P1 for five years at 9% and 15% are 3.8897 and 3.3522,
respectively. At the end of five years, the estimated salvage value is P40,000. If owned,
the cost of maintenance is expected to be P10,000 per year. Assume straight-line
depreciation, a 40% tax rate, a cost of debt of 15%, and a cost of capital of 9%.

What is the present value of the after-tax cost of leasing for the five-year period?
a. P151,698
b. P144,000
c. P 98,698
d. P165,800

13. At the end of 2017, Gabbuat Company’s total assets was P500,000. In 2018, it earned net
income of P30,000 and paid dividends of P10,000. What is the company’s internal
growth rate?
a. 1% c. 5%
b. 4% d. 9%

14. A division of Lockman Corporation reported a return on investment of 20% for a recent
period. If the division's asset turnover was 5, its profit margin must have been
a. 100% c. 4%
b. 25% d. 2%

15. As of the end of 2017, Ice Company had total assets of P375,000 and equity of P206,250.
For 2018, its budget for capital investment projects is P62,500. To finance a portion of
the capital budget, the company may borrow from a bank which set a condition that the
loan would be approved, provided that the 2018 debt-to-equity ratio should be the same
as the debt-to-equity ratio in 2017.

How much debt should be incurred to satisfy the bank’s condition?

a. P28,125 c. P34,375
b. P62,500 d. P51,138

Finals_Quizzes_Problems Page 4
 16. The Dumaguete Co. has an equity cost of capital of 17%. The debt to equity ratio is 1.5 and a
cost of debt is 11%. What is the weighted average cost of capital of the firm? (Assume a tax
rate of 33%)
A. 3.06% C. 16.97%
B. 13.40% D. 15.52%

17. During the past five years, Pena Company had consistently paid 50% of earnings available
to common as dividends. Next year, the Pena Company projects its net income, before the
P1.2 million preferred dividends, at P6 million.

The capital structure for the company is maintained at:

Debt 25.5%
Preferred stock 15.0%
Common equity 60.0%
What is the retained earnings break-point next year?
A. P5,760,000 C. P4,000,000
B. P4,800,000 D. P6,000,000

18. Calculate the DFL for a firm with EBIT of P6,000,000, fixed cost of P3,000,000, interest
expense of P1,000,000, preferred stock dividends of 800,000, and a 40 percent tax rate.
A. 6.0 C. 1.43
B. 9.0 D. 1.64

For Nos. 19 to 21:

Lorax Corporation is considering the acquisition of a new machine that is expected to produce annual
savings in cash operating costs of $30,000 before income taxes. The machine costs
$100,000, has a useful life of five years, and no salvage value. Lorax uses straight-line
depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate
of 8%.

Required:
A. Compute the machine's payback period.
B. Compute the machine's accounting rate of return on the initial investment.
C. Compute the machine's net present value.

For Nos. 22 to 25:

Wexler Corporation is considering the acquisition of a new machine that costs $350,000. The
machine is expected to have a four-year service life and will produce annual savings in cash
operating costs of $100,000. Wexler uses straight-line depreciation, is subject to a 30% income tax
rate, has an after-tax hurdle rate of 12%, and rounds calculations to the nearest dollar.

Required:
A. Determine the annual after-tax cash flows that result from acquisition of the machine.
B. Assuming that your answer in requirement "A" totaled $110,410, calculate the machine's:
1. Net present value. Is the machine an attractive investment? Why?
2. Internal rate of return. Is the machine an attractive investment? Why?
3. Payback period.

Finals_Quizzes_Problems Page 5