Business Finance

12
BUSINESS FINANCE
First Quarter
LEARNING ACTIVITY SHEETS

Republic of the Philippines
Department of Education
COPYRIGHT PAGE
Learning Activity Sheet in Business Finance
(Grade 12)
Copyright © 2020
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Note: Practice Personal Hygiene Protocols at all times. i

Table of Contents
Compentency Page
number
Explain the major role of financial management ..................... 1

and the different individuals involved
Distinguish a financial institution from financial ..................... 10

instrument and financial market
Explain the flow of funds within an organization- ..................... 23

through and from the enterprise - and the role of
financial manager
Identify the steps in the financial planning ..................... 33

process
Illustrate the formula and format for the ..................... 39

preparation of budgets and projected financial
statement
Explain tools in managing cash, receivables, ..................... 48

and inventory
Compare and contrast the loan requirements of ..................... 56

the different bank and nonbank institutions and
cite these institutions in the locality
Calculate future value and present value of ...................... 68

money
Compute loan amortization using mathematical .................... 77

concepts and the present value tables
Apply mathematical concepts and tools in ..................... 84

computing for finance and investment problems
Explain the risk-return trade-off ...................... 94
Note: Practice Personal Hygiene Protocols at all times. ii

BUSINESS FINANCE
Name of Learner: ________________________________ Grade Level: _______
Section: ________________________________________ Date: _____________
LEARNING ACTIVITY SHEET
ROLES OF FINANCIAL MANAGEMENT AND THE DIFFERENT

INDIVIDUALS INVOLVED
Background Information for Learners
Financial management deals with decisions that are supposed to maximize the
shareholders’ wealth (Cayanan 2015). These decisions will ultimately affect the market’s
perception of the company and influence the share price. Financial management also refers t o
the effective and efficient planning, organizing, directing and controlling of financial activities
and processes of an organization. This includes but is not limited to fund procurement,
allocation of financial resources, utilization of funds, etc. With the definition of financial
management provided by different authors financial management role in an organization is
very much important.
Roles of Financial Management
a. Financial decisions and controls: Financial management and financial managers play
a crucial role in making financial decisions and exercising control over finances in the
organization. They make use of techniques like ratio analysis, financial forecasting, profit and
loss analysis, etc.
b. Financial Planning: The finance managers are responsible for the planning of financial
activities and resources in the organization. To this end, they use available data to understand
the needs and priorities of the organization, as well as the overall economic situation and make
plans and budgets for the same purpose.
c. Capital Management: It is the responsibility of financial management to estimate the
capital requirements of the organization from time to time, determines the capital structure and
composition and makes the choice of source of funding for the capital needs.
d. Allocation and Utilization of financial resources: Financial management ensures that
all financial resources of the organizations are used and invested effectively and efficiently so
that the organization is profitable, sustainable and viable in the long-run.
e. Cash Flow Management: It is extremely important for organizations to have sufficient
working capital and cash flow to meet their operational expenses and emergencies. Financial
management tracks account payable and receivable to ensure there is sufficient cash flow
available at all times.
f. Disposal of Surplus: The decisions on how the surplus or profits of the organizations
is utilized is taken by the financial managers of the organizations. They decide if dividends
should be distributed and how much as well as the proportion of profits that must be retained
and ploughed back into the business.
g. Financial Reporting: Financial management maintains all necessary reports related to
the finance of the organization and uses this as the database for forecasting and planning
financial activities.
Note: Practice Personal Hygiene Protocols at all times. 1

h. Risk Management: Sound financial management prepares the organization to forecast
risks, put in place mitigation plans as well as to meet unforeseen risks and emergencies
effectively.
The goal of financial management is to maximize the value of shares of stocks.

Managers of a corporation are responsible for making the decisions for the company that would
lead towards shareholders’ wealth maximization. The need on who will act such a role in the
financial management in an organization is a must. Therefore, the diagram below shows a
corporate organizational structure where you can picture the different individuals involved in
the organization.
The table below shows the roles of different individuals involved in the Financial Management
People Involved Roles/Functions/Responsibilities
Shareholders The owners or investors in the firm.
Board of It is the highest policy making body in a corporation. Its primary
Directors responsibility is to ensure that the corporation is operating to serve the
best interest of the stockholders.
Hence, the responsibilities of the board of directors:
- Setting policies on investments, capital structure and dividend policies
- Approving company’s strategies, goals and budgets
- Appointing and removing members of the top management including
the president
- Determining top management’s compensation
- Approving the information and other disclosures reported in the
financial statements
President - Overseeing the operations of a company and ensuring that the strategies
as approved by the board are implemented as planned
- Performing all areas of management: planning, organizing, staffing,
directing and controlling
- Representing the company in professional, social, and civic activities
VP for - Formulating marketing strategies and plans
Marketing - Directing and coordinating company sales
- Performing market and competitor analysis
- Analyzing and evaluating the effectiveness and cost of marketing
methods applied

- Conducting or directing research that will allow the company identify
new marketing opportunities, e.g. variants of the existing
products/services already offered in the market
- Promoting good relationships with customers and distributors
VP for - Ensuring production meets customer demands
Production - Identifying production technology/process that minimizes production
cost and make the company cost competitive
- Coming up with a production plan that maximizes the utilization of the
company’s production facilities
- Identifying adequate and cheap raw material suppliers
VP for - Coordinating the functions of administration, finance, and marketing
Administration departments
- Assisting other departments in hiring employees
- Providing assistance in payroll preparation, payment of vendors, and
collection of receivables
- Determining the location and the maximum amount of office space
needed by the company
- Identifying means, processes, or systems that will minimize the
operating costs of the company
VP for Finance - Funding long term investments (such as company expansions) and
working capital which deals with the day to day operations of the
company
- Determining the type of investment for the firm
- Dealing with the daily operations of the company
- Developing policies on dividends
LEARNING COMPETENCY
Explain the major role of financial management and the different individuals involved
(Quarter 1, Week 1-2) BF12-IIIa-1
Exercise 1. Directions: Below are quotes from CEO’s of business organizations. Give your
insights in every quote based on what you have read. Use the diagram below for your answers.
1. “Finance plays a critical role across every aspect of our business. We enable the
business to turn our ambition and strategy into sustainable, consistent and superior
performance” - Jean-Marc Huët of Unilever
2. “It’s very exciting because you are not just thinking of today but what the company will
need in the future” - Ysmael V. Baysa. of Jollibee
3. “Yesterday’s solutions are never adequate for the future” - Albert De Larrazabal of
Globe Telecom
4. “Now, we don’t go out because we need funds. We go out because it’s an opportunity.”
– Jose T. Sio of SM Corporation

Quote Number Your Insights
1
Exercise 2. Directions: The statements below are related to the functions of VP of Finance.
Write F if the statement is related to financing, I for investing, O for operating and D if the
statement is related to dividend policies. Write your answer on the space provided for.
______1. Plan for expected excess in cash using Financial Planning tools.
______2. Determine working capital.
______3. Declare dividend to shareholders.
______4. Choose long-term investment.
______5. Purchase land for sale.
______6. Borrow additional fund to the bank.
______7. Declare 40% of income use to purchase inventories.
______8. Determine salaries of employees.
______9. Division of surplus to the shareholders of the firm.
______10. Purchase 1 million worth of equipment with return on investment or ROI in 5
years.

Exercise 3. Directions: Develop an organization structure of your chosen business. Make a list
of people involved in the organization and enumerate their possible duties and functions. Write
your answer on the space below.
SHAREHOLDERS
BOARD OF DIRECTORS
PRESIDENT (CEO)
VP FOR VP FOR VP FOR VP FOR

MARKETING FINANCE PRODUCTION ADMINISTRATION
MARKTE
Exercise 4. Directions: Complete the given statement in each item by writing A if it is

applicable to choice (a), B if the statement is applicable to (b), C if the statement is
applicable to both (a) and (b), and D if the statement is not applicable to both (a) and
(b). Write your answer on the space provided for.
______1. The shareholder in a corporation is considered as ______.

a. owner
b. stockholder
______2. Financing as one function of VP for Finance is used ______.
a. to determine the appropriate capital structure of the company
b. to raise funds from debt and equity
______3. VP for marketing function includes ____________.
a. directing and coordinating company sales.
b. performing human resource analysis.
______4. Appointing and removing members of the top management including the president
is a role of ____.
a. shareholders
b. Board of Directors
______5. Finance is a/an __________ of managing money.
a. art
b. science
______6. Financing decision includes_____.
a. making decisions on how to fund long term investments.
b. making decisions on how to maintain working capital
______7. VP for production ensures ______.
a. quality of products
b. liquidity of the firm
______8. VP for marketing prepares _____.
a. sales forecast
b. budget forecast

______9. Investment could be _____.
a. short-term
b. long-term
______10. Owners of the firm includes________.
a. VP for finance
b. VP for operations
Exercise 5. Directions: The different departments cannot stand alone; therefore, they need
the support of other departments to facilitate the maximization of shareholders’ wealth.
Explain and discuss possible contribution of one department to the other departments. Use the
given diagrams for your answers.
Sample:
FINANCE PRODUCTION
• The finance provides budget to the department as bases in producing
product for the firm.
MARKETING
• The finance provides copy of cost incurred in promoting product to
maximize fund allotted for promotion.
OPERATION
• The finance provides the budget for recruitment and selection since
training and developing people involve cost that would possibly lessen
the income of the firm.
a)
PRODUCTION FINANCE
MARKETING
OPERATION
b)
MARKETING FINANCE
PRODUCTION
OPERATION

c)
OPERATION FINANCE
PRODUCTION
MARKETING
Exercise 6: Directions: From your readings on the role of financial management, determine
what is being asked in column B from the choices in column A. Write the letter of your
choice in the space provided for.
Column A Column B
A. Surplus ______1. It means positive result in the operation on the business
B. Capital budgeting firm.
C. Financial Report ______2. This includes statement of income, statement of cash
D. Financial
flows, statement of retained earnings, etc.
Planning
E. Profit and loss ______3. It is used to analyze company’s liquidity, solvency,
analysis efficiency and profitability of the firm.
F. ratio analysis ______4. It is a process a business uses to evaluate potential
G. capital major
management projects or investments.
H. cash flow ______5. It is the process of framing financial policies in relation
management
I. financial to procurement, investment and administration of funds
resources of
J. risk management an enterprise.
K. financial ______6. It means managing the inflow and outflow of cash.
decisions ______7. It measures the ability of the company to generate
income
from the use of its assets and invested capital as well as
control its cost.
______8. This includes cash, short-term investment, stocks and
bonds.
______9. It means managing uncertainties that would affect the
business firm.
______10. It refers to a strategy that requires monitoring a
company's current assets and liabilities to ensure its
efficient operation.

Rubric for Scoring Exercises 1 and 5
Name:______________________________ Date:________
Topic:______________________________ Hour:_______
4 3 2 1 Score
Main Topic Strong main idea Adequate main idea Weakly stated main Unclear main idea
restated in the restated in the idea not restated in
closing sentence closing sentence weakly restated in closing sentence
closing sentence
Supporting Three or more Two supporting One supporting No supporting
Sentences supporting sentences sentence sentences
sentences per per paragraph per paragraph
paragraph
Grammar Few, if any, errors Several errors that Many errors that Many errors that
do not interfere interfere with make it illegible
with meaning meaning
Source: https://study.com/academy/popular/paragraph-writing-rubrics.html
Rubric for Scoring Exercises 3
Name:______________________________ Date:________
Topic:______________________________ Hour:_______
4 3 2 1 Score
Content Knowledge The chart shows The chart is The chart is lacking The tree map is
all the required lacking in in elements lacking in elements
elements. elements required. required. There are
The required. The responsibilities no stated
responsibilities of The of 1 of the branches responsibilities of
all the branches responsibilities of and levels are the branches and
and levels take 2 of the branches present in detailed levels
into consideration and levels are statements.
present in detailed
statements.
Format/presentation The chart is of The chart is the The chart is correct Not on required
exceptional correct size, clean paper size, but paper size and
quality and and neatly poorly presented. poorly presented.
presentation. displayed.
Grammar The details are The details are The details are The details are not
complete complete complete complete statements
statements with statements with statements and and contain errors
no errors. minimal errors. contain errors that that completely
somewhat interrupt interrupt the flow of
the flow of communication.
communication

Reflection
Complete this statement:
What I have learned in this activity:

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
References:
• Department of Education Business Finance Teaching Guide

• Florendo, Joselito G (2016). Fundamentals of Accountancy, Business and Management
(1 ed.) Rex Book Store
st
• https://talentedge.com/articles/role-financial-management-organization/
• https://www.investopedia.com/terms/c/capitalbudgeting.asp
• https://www.managementstudyguide.com/financial-planning.htm
• https://www.investopedia.com/terms/w/workingcapitalmanagement.asp
Prepared by:
ABEMAILA L. DELA CRUZ

Cordova National High School

Answer Key
Exercise 1. Answers may vary 4. B
Exercise 2 5. C
1. I 6. C
2. O 7. A
3. D 8. A
4. I 9. C
5. I 10. D
6. F
7. F Exercise 5 Answer may vary
8. O Exercise 6
9. D 1. A
10. I 2. C
3. F
Exercise 3 Answer may vary 4. B
5. D
Exercise 4 6. H
1. C 7. E
2. C 8. I
3. A 9. J
10. G
Prepared by:
ABEMAILA L. DELA CRUZ

Cordova National High School

BUSINESS FINANCE
Name of Learner: _____________________________________ Grade Level: ________
Section: _____________________________________________ Date: ______________
FINANCIAL INSTITUTION, FINANCIAL INSTRUMENT

AND FINANCIAL MARKET
Financial institutions/ intermediaries are organizations that perform certain financial

and monetary transactions/activities such as deposits, accepts investments currency exchange
and provide loans to businesses. These are the firms that bridge the gap between surplus units
(SUs) or investors/lenders and deficit units (DUs) or borrowers. They channel funds from
lenders to borrowers and include depository and non-depository institutions.
Other than being a channel, they are lenders and borrowers at times. When they underwrite
securities or act as brokers or dealers, they are intermediaries. If they buy securities, they are
investors or lenders, and when they are the ones issuing securities, they are borrowers.
Some of the major categories of financial institutions are Commercial Banks,

Investment Banks, Insurance Companies, Brokerages, Investment Companies and Nonbank
Financial Institutions.
Financial Instrument. Monetary contract between parties or any contract that gives rise
to a financial asset of one entity and a financial liability or equity instrument of another entity.
They can be created, traded, modified and settled.
TYPES OF FINANCIAL INSTRUMENTS:
-Deposits
-SDRs (Special Drawing Rights)
-Borrowings
-Loans
-Shares and other equity
-Debentures or bonds
-Other account receivables & payables
-Financial derivatives
-Letter of guarantee

-Letter of credit
-Financial commitments
-Pledged financial assets
In finance, financial instruments are classified as to their term or maturity date. They can
either be short- term (with maturity of one year or less) or long- term (with maturity of more
than one year). Short- term instruments belong to the money market, while long- term
instruments belong to the capital market.
Financial Market refers to a marketplace, where creation and trading of financial assets,
such as shares, debentures, bonds, derivatives, currencies, etc. take place. It plays a crucial
role in allocating limited resources, in the country’s economy. It acts as an intermediary
between the savers and investors by mobilizing funds between them.
The financial market provides a platform to the buyers and sellers to meet for trading assets
at a price determined by the demand and supply forces.
Financial markets are classified as either (1) primary or secondary market or (2) money or
capital market. Although we have other classifications of financial markets, these two are the
basic classifications of financial markets.
Money Market: The market where monetary assets such as commercial paper, certificate
of deposits, treasury bills, etc. which mature within a year, are traded is called money market.
It is the market for short-term funds. No such market exists physically; the transactions are
performed over a virtual network, i.e. fax, internet or phone.
Capital Market: The market where medium and long term financial assets are traded in
the capital market. It is divided into two types:
(a) Primary Market: A financial market, wherein the company listed on an exchange,
for the first time, issues new security or already listed company brings the fresh issue.
(b) Secondary Market: Alternately known as the Stock market, a secondary market is
an organized marketplace, wherein already issued securities are traded between investors,
such as individuals, merchant bankers, stockbrokers and mutual funds.
(Mariano, N.L. (2017) Capital Markets. Rex Book Store)
Now, try this!
After reading the main concepts on financial institution, financial instrument and financial
market above, accomplish the following activities with the best that you can
by answering the questions given.

Learning Competency:
Distinguish financial institution from financial instrument and financial market
(ABM_BF12-IIIa-2) Quarter 1- Week 1 & 2
Exercise 1. TRUE/FALSE
Directions: Read each statement below carefully. Write X if the statement is TRUE and
Y if otherwise on the space provided for.
______ 1. Financial institution matches the supply and demand for funds.
______ 2. Financial system channels the funds from the savings unit to the deficit units.
______ 3. Financial instrument and securities are traded in the financial market.
______ 4. Financial intermediaries provide channel through which the central bank can
influence the economy, in general and the financial system, in particular.
______ 5. Borrowers and savers fall under deficit units.
______ 6. Bank is an example of financial intermediary.
______ 7. Lender is otherwise known as savings unit.
______ 8. Financial institutions include banks, credit unions, asset management firms,
building societies, and stock brokerages, among others.
______ 9. Borrowers are also known as creditors.
_____ 10. Financial institutions can be divided in two major parts: Banking
Institution and Non-banking institution.
_____ 11. Financial intermediary links the savers and users of funds.
_____ 12. When the BSP produces a surplus in the currency of the country, inflation will
be uncontrollable.
_____ 13. Globalization permits foreign participants to be part of the financial system.
_____ 14. Exchange rates is one of the activities in a financial system.
_____ 15. Financial systems affect a country’s economy.
Exercise 2. FINANCE TERMS
Directions: Each term in the following list is essentially or nearly a synonym for another in the
same list. Identify these pairs by putting the letter of the synonym on the blank provided for.
Term Means essentially the same as
a. appreciation ________________
b. supply of foreign currency ________________
c. law of one price ________________
d. dirty float ________________
e. floating exchange rate ________________
f. devaluation ________________
g. demand for domestic currency ________________
h. pegged exchange rate ________________
i. revaluation ________________
j. fixed exchange rate ________________
k. managed float ________________
l. depreciation ________________
m. purchasing power parity ________________
n. flexible exchange rate ________________

Exercise 3. SENTENCE ANALYSIS
Directions: Read the following statements below and identify whether:
A- Both statements are TRUE C- 1st statement is TRUE; 2nd statement is FALSE
B- Both statements are FALSE D- 1st statement is FALSE; 2nd statement is TRUE
Write the letter of your answer on the space provided before each number. Use CAPITAL
letters only.
_____1. Capital markets carry out the desirable socioeconomic function of
directing capital to productive uses.
- Capital markets can be in a national or an international setting.
_____2. Debt is defined as money that is borrowed and must be repaid.
- Equity is money that is invested in return for a percentage of ownership.
_____3. All investments are risky.

- Basically, a higher rate of return means a higher risk.
_____4. When savers make investments, they convert risk-free assets into risky assets.
- Cash or savings are risk-free assets.
_____5. Mutual funds are pools of money managed by an investment bank.

-This investment bank is investing in stocks and bonds all over the world.
_____6. Financial intermediaries are very important in the capital marketplace.

- Bank loan is a financial intermediary.
_____7. In direct investments, the company invests in the capital market with its own effort.
-While in the indirect investment, the company invests through a financial intermediary.
_____8. Creditors, or debt holders, purchase debt securities and deduct future interest income
in return for their investment.
-When investors buy bonds, they are lending the issuers of the bonds their money.
_____9. The most common example of a debt instrument is the bond.

-All types of organizations can issue bonds.
____10. Stocks are the type of equity security with which most people are familiar.
-When investors buy stock, they owe a share of a company’s assets and earnings.
Exercise 4. FINANCIAL SYSTEM
Directions: Visit the BSP website (http://www.bsp.gov.ph/) and let’s find out how well you
internalize the information from the website by answering this activity. Choose the letter that
corresponds to your answer. Write your answer on the space provided for.
______ 1. Which of the following actions will be appropriate if there is
an inflationary pressure due to excessive demand?
a. BSP to slow down inflation by implementing incrementing monetary policy.
b. BSP to slow down inflation by implementing contractionary monetary policy.
c. BSP check the availability and cost of money in circulation and identify if it matches
the demand.
d. Only B and C

______ 2. What might be the possible reason explaining ‘why BSP adopts
inflation targeting?’
a. Increases accountability of the financial system and helps build credibility
b. Enables comprehensive approach to monetary policy
c. Allows mere focus on price stability
d. All of the above
______ 3. What might happen if The BSP increases policy interest rate?
a. It increases accountability of the financial system and helps build credibility.
b. Banks’ interest rates will follow the increase.
c. There will be lower cost of borrowing.
d. There will be an excessive demand for currency.
______ 4. The first pillar of the BSP focuses on ‘Price Stability,’ what does it imply?
a. All banks should help BSP make the price of goods and services stable.
b. They focus on preserving of purchasing power.
c. The BSP tries to lower cost of borrowing.
d. The citizens have the ability to buy goods and services in a reasonable price.
______ 5. Financial stability serves as the 2 Pillar of the BSP. How can BSP sustain
nd
its 2
nd
mandate?
a. The BSP should sustain it through inflation targeting and monitoring.
b. The BSP should sustain it through banking supervision and regulation.
c. The BSP should sustain it through close monitoring of banks and other financial
institutions.
d. The BSP should sustain it through financial literacy campaign to government,
households and firms.
______ 6. One of the supervising and regulating duties of the BSP is the surveillance to financial
institutions. For banks, one thing they check is the implementation of the so called, AML
Act, which stands for?
a. Anti-Money Laundering Act
b. Anti-Money Loandering Act
c. Anti-Mobile Loandering Act
d. Anti-Mobile Laundering Act
______ 7. What will happen when the BSP accomplishes its supervising and regulating duties
of financial institutions?
a. The country will have a stable and manageable inflation.
b. The BSP will have complied with Consumer Protection Laws and Safety and Soundness
of Financial Institutions.
c. The BSP will have good implementation of the AML Act since there is a close
monitoring of financial institutions.
d. The BSP will conduct a consistent and reliable financial literacy campaign to
government, households and firms.
______ 8. What should the BSP do to ensure safe and efficient payments and settlements of
financial transactions?
a. It must comply with the Consumer Protection Laws and Safety and Soundness of
Financial Institutions.
b. It must efficiently operate the PhilPaSS for transacting parties that directly benefit the
financial system.

c. It must implement the AML Act and conducts a close surveillance of financial
institutions.
d. It must strengthen its efforts to financial literacy campaign for the government,
households and firms.
______ 9. Which of the following fall under the other functions of the BSP?
a. They maintain price stability.
b. They serve as custodian of official reserves.
c. They implement the AML Act and conduct a close surveillance of financial institutions.
d. They support financial education literacy campaign.
______ 10. In order to have efficient payments and settlement system, the BSP owns
the PhilPaSS. What does PhilPaSS stand for?
a. Philippine Pricing and Settlements System
b. Philippine Pricing and Settling System
c. Philippine Payments and Settling System
d. Philippine Payments and Settlements System
______ 11. BSP grants licenses and special authorities to the following ______________
a. pawnshops, mutual fund companies and schools.
b. banking institutions, other financial institutions, NBFI w/o quasi banking functions.
c. commercial banks, universal banks, thrift banks, cooperative banks, rural banks.
d. banking Institutions, other financial institutions, SEC, CDA, IC.
______ 12. This happens when the financial system is able to effectively distribute and manage
FUNDS between surplus (savers) and deficit units (spenders) and RISKS attendant to
the movement of funds and provision of services.
a. financial surplus
b. financial stability
c. efficient financial system
d. price stability
______13. If the BSP maintains its credibility, then inflation expectations will ___________
a. allow greater focus on price stability.
b. remain well-anchored.
c. promote transparency in monetary policy.
d. become forward-looking.
______14. If the investment and consumer growth will be slower then, aggregate demand
growth will ___________ .
a. remain well-anchored.
b. be slower too.
c. be manageable and ideal.
d. become forward-looking.
______ 15. This refers to the action taken to manage the availability and cost of
money and credit to attain stable prices.
a. Inflation targeting
b. Monetary Policy
c. Rediscounting
d. Redress and Literacy

Exercise 5: FINANCIAL INSTITUTIONS
Directions: Identify the following banking institutions into their respective group. Write UB-
Universal Banks; CB-Commercial Banks; TB-Thrift Banks; CPB- Cooperative Banks; and RB-
Rural Banks.
BANKS LOGO RESPECTIVE

GROUP
1. Security Bank Corporation
2. Robinsons Bank Corporation
3. Land Bank of the Philippines
4. Philippine Veterans Bank
5. Philippine Business Bank
6. FICO Bank
7. Sterling Bank of Asia
8. Bank of Makati
9. Country’s Builder Bank

10. Metropolitan Bank and Trust
Company
11. Philippine Savings Bank
12. Citibank
13. Union Bank of the Philippines
14. Rizal Commercial Banking

Corporation
15. United Coconut Planters Bank
Exercise 6. ESSAY
Directions: Read each question below and answer it properly. Write your answer on
the spaces provided for.
1. Discuss the meaning of financial system. What is its importance to the nation? (10 pts.)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

2. What are the roles of the financial institution, financial instrument and financial market
in the well-being of the country (Philippines)? (10 pts.)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
RUBRIC for SCORING
INDICATORS POINTS
POINTS EARNED
POINTS EARNED
NO. 1 NO. 2
1. Content Relevance 5
2. Organization of Thoughts
3
3. Grammar and Mechanics
2
Total 10
Reflection:
In the activity, I have learned

__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
References:
• Capital Markets 1 Edition, Norma Dy Lopez- Mariano, PhD
st
• https://www.slideshare.net/athaullah9/financial-instituations-instruments-
and-markets
• https://www.slideshare.net/MoumitaSen7/financial-instruments-55790403
• http://www.bsp.gov.ph/
Prepared by:
BRIAN S. INCOGNITO
Claveria School of Arts and Trades

Answer Key
Exercise 1.
1. X
2. X
3. X
4. X
5. Y
6. X
7. X
8. X
9. X
10. X
11. Y
12. X
13. X
14. X
15. X
Exercise 2.
Term Means essentially the same as
a. appreciation i
b. supply of foreign currency g
c. law of one price m
d. dirty float k
e. floating exchange rate n
f. devaluation l
g. demand for domestic currency b
h. pegged exchange rate j
i. revaluation a
j. fixed exchange rate h
k. managed float d
l. depreciation f
m. purchasing power parity c
n. flexible exchange rate e

Exercise 3.
1. A 13. B
2. A 14. B
3. A 15. B
4. D
5. B
6. C
7. A
8. A Exercise 5.
9. A
10. C
1. UB
Exercise 4. 2. CB
3. UB
4. CB
5. TB
1. A 6. RB
2. B 7. TB
3. B 8. TB
4. B 9. RB
5. B 10. UB/ CB
6. A 11. TB
7. B 12. UB
8. B 13. UB
9. B 14. UB
10. D 15. UB
11. B Exercise 6: Answers may vary
12. B
Prepared by:
BRIAN S. INCOGNITO

BUSINESS FINANCE
Name of Learner: ___________________________________ Grade Level: __________
Section:___________________________________________ Date: ________________
THE FLOW OF FUNDS AND THE ROLE OF THE FINANCIAL

MANAGER

The term ‘Flow of Fund’ refers to the changes in working capital of the movement or
changes of funds. In other words, while a transaction is taking place, any increase or decrease in
funds or working capital is called Flow of Fund. If the funds or working capital increases, it is
treated as the inflow or sources of fund. On the other hand, if the funds or working capital
decreases, it is called the outflow of fund. (www.kullabs.com)
The flow of funds, therefore, denotes the earning and spending of cash or the growth and
reduction of working capital—i.e., fund inflows and outflows. Fund inflows include activities
designed to produce revenues, such as selling products, services, investments, and other company
assets, as well as issuing stocks and bonds. On the other hand, fund outflows include paying
wages, obtaining insurance, purchasing company assets and materials, making long-term
investments, and paying dividends and taxes. At one point, companies gauged their flow of funds
by using any definition of funds and included a financial statement reporting these activities in
their annual reports. (www.referenceforbusiness.com/encyclopedia)
The flow of funds does not occur when a transaction affects fixed assets and fixed
liabilities or current assets and current liabilities. This kind of transaction flow is called no f low
of fund and it occurs only between non-current accounts. Some examples of such transactions
which do not affect the flow of funds or which are not recorded in the fund’s flow statement are:
Collection from debtors or payment to creditors, purchase or sales on inventory in cash or credit,
purchase or sales of marketable securities, exchange of fixed assets, purchase of fixed assets by
issue of shares, conversion of debentures into shares, etc. (www.kullabs.com)
In addition, when we have the comparison between cash flow and fund flow, cash flow
refers to the current format for reporting the inflows and outflows of cash, while funds flow refers
to an outmoded format for reporting a subset of the same information. Cash flow is derived from
the statement of cash flows. (https://www.accountingtools.com/)
Moreover, a cash flow statement shows the inflows and outflows of cash and cash
equivalents. Cash includes cash in hand and demand deposits with the banks while cash
equivalents are highly liquid investments, i.e. they can be readily converted into cash like
marketable securities, commercial papers, and short-term government bonds. It explains the
changes in the cash in hand and cash at bank at the beginning and the end of the accounting
period.

THE ROLE OF THE FINANCIAL MANAGER
Financial managers perform data analysis and advise senior managers on profit -
maximizing ideas. Financial managers are responsible for the financial health of an organization.
They produce financial reports, direct investment activities, and develop strategi es and plans for
the long-term financial goals of their organization.
The role of the financial manager, particularly in business is changing in response to
technological advances that have significantly reduced the amount of time it takes to produce
financial reports. Financial managers’ main responsibility used to be monitoring a company’s
finances, but they now do more data analysis and advise senior managers on ideas to maximize
profits. They often work on teams, acting as business advisors to top executives.
As to skills, financial managers need to show evidence of commercial and business
awareness, high numeracy and sound technical skills, problem-solving skills and initiative,
negotiation skills and the ability to influence others and strong attention to detail and an
investigative nature.
The roles of financial managers can vary enormously. In larger companies for instance, the
role is more concerned with strategic analysis, while in smaller organizations, a financial manager
may be responsible for the collection and preparation of accounts.
In general, tasks across roles may include:
Providing and interpreting financial information- Knowing how to work with the numbers
in a company's financial statements is an essential role for financial manager. The
meaningful interpretation and analysis of balance sheets, income statements, and cash flow
statements to discern a company's investment qualities is the basis for smart investment
choices.
Formulating strategic and long-term business plans- A strategic plan with key long-term
objectives serves as a framework for making decisions and provides a basis for planning.
Putting together a strategic plan can provide the insight needed to keep a company on
track by setting goals and measuring accomplishments. By analyzing the information in

the long-term plan, executives can make necessary changes and set the stage for further
planning.
Developing financial management mechanisms that minimize financial risk- Business
establishments routinely face different types of risks in the course of their operations. Risk
stems from uncertainty of financial loss and can potentially cripple the business if not
managed in time. This demands that mechanisms to manage risk be created via a risk
management philosophy, with the objective of minimizing negative effects risks can have
on the financial health of the institution. In this way financial manager’s role involves
identifying potential risks in advance, analyzing them and taking steps to diminish or
eliminate them.
Managing financial accounting, monitoring; reporting systems and producing accurate
financial reports to specific deadlines; and liaising with auditors to ensure annual
monitoring is carried out - Accountability is a key feature of the financial systems. The
budget is the financial plan for the year and it is essential for the financial manager to
monitor actual progress against this plan to ensure that the desired fiscal result will be
achieved. The monthly reports are the main tool of financial control enabling cost centers
to monitor income and expenditure against budget.
Keeping abreast of changes in financial regulations and legislation- New laws,
regulations and public expectations have pushed governance and compliance even higher
up the boardroom agenda. Financial managers everywhere recognize it’s essential to make
sure their companies have effective, robust and reliable governance and financial
compliance tools.
Explain the flow of funds within an organization – through and from the enterprise—and the role
of the financial manager, (ABM_BF12-IIIa-5)- Quarter 1, Week 1& 2
Exercise 1. SENTENCE ANALYSIS

Directions: Read each of the following statements differentiating FUND FLOW and CASH
FLOW and identify whether it is:
A- Both statements are TRUE C- 1st statement is TRUE; 2nd statement is FALSE
B- Both statements are FALSE D- 1st statement is FALSE; 2nd statement is TRUE
Write the letter of your answer on the space provided before each item. Please use Capital letters.
_____1. (a) A statement that shows the changes in the cash and bank balance between opening
and closing dates is known as a cash flow statement; while (b) a statement that shows the variations
in the financial position between the two financial years is known as a fund flow statement.
_____2. (a) Fund Flow Statement examines the firm’s efficiency in utilizing the working capital.
(b) Conversely, Cash Flow Statement analyses the cash generating efficiency of the entity.
_____3. (a) Cash Flow statement is a part of Financial Statement. (b) Fund Flow Statement is part
of the Balance Sheet.
_____4. (a) Fund Flow Statement is helpful to a long-term analysis of financial planning; (b) while
Cash Flow statement is useful for a short term financial analysis of cash planning.

_____5. (a) Cash flow statement contains opening and closing balances of cash and cash
equivalents. (b) On the contrary, fund flow statement does not contains opening and closing
balances of cash and cash equivalents.
_____6. (a) Fund Flow statement uses noncash basis of accounting. (b) On the contrary, Cash
Flow statement uses the Accrual Basis of Accounting.
_____7. (a) Fund Flow Statement shows the sources and application of funds, (b) but Cash Flow
statement shows the inflows and outflows of cash.
_____8. (a) A fund flow statement is a statement showing the changes in the financial position of
the entity in the current accounting year. (b) A cash flow statement is a statement showing the
inflows and outflows of cash and cash equivalents over a period.
_____9. (a) Fund flow statement is prepared to show the reasons for the changes in the financial
position, with respect to previous year and current accounting year. (b) Cash Flow statement is
prepared to show the reasons for movements in the cash at the beginning and at the end of the
accounting period.
_____10. (a) Cash flow refers to the current format for reporting the inflows and outflows of cash,
(b) while funds flow refers to an outmoded format for reporting a subset of the same information.
Exercise 2.
Directions: Read the following ACTIVITIES and identify whether it is INFLOW, OUTFLOW
or NO FLOW type of transaction. Write your answer on the space provided for.
ANSWERS ACTIVITIES
1. Interest received from making loans
2. Payments to acquire inventory
3. Conversion of debentures into shares
4. Payments to lenders and other creditors for interest
5. Sale of property, plant, and equipment
6.Cash paid purchase available-for-sale and held-to-maturity securities
7. Purchased of fixed assets by issue of shares
8. Cash paid to make long-term loans to others.
9. Payments of cash dividends or other distributions to owners
10. Repayments of amounts borrowed.
11. Purchase or sales of marketable securities
12. Cash received from issuing capital stock and bonds,
13. Cash received from mortgages, and notes, and from other short- or long-
term borrowing.
14. Payment of taxes.
15. Payments of Registration Fee at the Securities and Exchange
Commission.

Exercise 3.
Directions: Formulate JOB SPECIFICATIONS (what are the qualities and

qualifications of a Financial Manager you are looking for) and JOB
DESCRIPTIONS (duties you want the Financial Manager to perform.)
Please use the format below for your answers:
FINANCIAL MANAGER
Example: Example:
Holder of NC3 in In- charge in the overall financial matters of the
Bookkeeping company.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Note: May opt to change the number of items depending on the teacher’s
decision. Checking/ scoring will be prerogative of the teacher. (Matching of answers on
the required/ directions)

Exercise 4.
Directions: Find out the terms relating to ‘The Flow of Funds and the Role of the Financial
Manager by analyzing the pictures given. Write your answer in the boxes provided for.
N E O S
1
1 2
A G A E
3 4

A I I S
6
5
E R E U S
7 8

A E E E
10
9
Source: www.dailypuzzlecheats.com
Exercise 5.
Directions: Complete the illustration below about the ‘flow of funds’. Choose your answers
from the box below.
3)
2)
4)
1)
5)
www.thebalancesmb.com

TAXES BUILDING BUSINESS
MONEY WAGES RENT
PAYMENT INCOME COINS
CONSUMER
Reflection:
What I have learned in this activity

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________
References:
• Business Finance Teachers Guide
• (https://www.suomenpankki.fi/en/financial-stability/the-financial-system-in-brief)
• (www.kullabs.com)
• (keydifferences.com)
• (https://www.accountingtools.com/)
• dryrun.com
• https://www.thebalancesmb.com/cash-flow-how-it-works-to-keep-your-business-
afloat-398180
Prepared by:
BRIAN S. INCOGNITO
Writer

Answer Key • A graduate of BS Accountancy or
any business-related courses
Exercise #1 • Must be a Certified Public
1. A Accountant or Certified Financial
2. A Analyst
3. C JOB DESCRITIONS:
4. A
5. A • Prepare financial statements,
6. B business activity reports, and
7. A forecasts
8. D • Monitor financial details to ensure
9. A that legal requirements are met.
10. A
Exercise 4.
Exercise 2:
1. INCOME
1. Inflow 2. PROJECTIONS
2. Outflow 3. SAVINGS
3. No flow 4. PAYMENT
4. Outflow 5. PLANNING
5. Inflow 6. BUSINESS
6. Outflow 7. PERFORMANCE
7. No flow 8. FUNDS
8. Outflow 9. FINANCE
9. Outflow 10. INCREASE
10. Outflow
11. No flow
12. Inflow
13. Inflow Exercise 5.
14. Outflow 1. CONSUMER
15. Outflow 2. BUSINESS
3. RENT
Exercise 3. (Answers may vary) 4. TAXES
5. WAGES
Expected Answers:
JOB SPECIFICATIONS:
Prepared by:
BRIAN S. INCOGNITO
Writer

BUSINESS FINANCE
Name of Learner:________________________________ Grade Level:_____________
Section:________________________________________ Date:___________________

STEPS IN FINANCIAL PLANNING PROCESS
Most people want to handle their finances so that they get full satisfaction from each
available dollar. Typical financial goals include such things as a new car, a larger home, advanced
career training, extended travel, and self-sufficiency during working and retirement years.
To achieve these and other goals, people need to identify and set priorities.
Financial satisfaction is the result of an organized process that is commonly referred to as financial
planning.
For more understanding this information sheet below provides the steps in the financial
planning process.
Steps in the
Financial Planning Explanation Example
Process
1. Set goals or This can be seen in the company’s Jollibee Foods Corporation
objectives vision and mission statements. The (JFC)
vision statement tells where the Vision: To excel in providing
company wants to be while the great tasting food that meets
mission statement states the plans local preferences better than
on how to achieve the vision. anyone; to become one of the
three largest and most profitable
restaurant companies in the
world by 2020.
Mission: To serve great tasting
food, bringing the joy of eating
to everyone.
2. Gather the Gathering data includes Cash for the continuous
relevant data determining the resources which operation of the business.
include but not limited to Raw materials for
production capacity, human manufacturing type of business
resources who will man the activity.
operations and financial resources. For selling an insurance policy
consider the K’s system.

(Kakilala, Kaibigan, Kalaro,
etc.)
3. Analyze the In analyzing data eliminate Use financial calculator in
data irrelevant information. determining the correctness of
the insurance premium due if
you invest for an insurance
company.
4. Develop the Developing the plan with For a customer who was a
plan with recommendations and alternatives victim of a financial scam,
recommendations and done based on the analytical data prepare the background of the
alternatives that will suit the need of the business and its legal documents
customer. as a prof for sale.
5. Implement the It requires immense focus and To make a sale of insurance
plan discipline to implement the plans policy, show evidence that
and stay with it. would encourage the customer
It means the application of the plan. to buy.
6. Monitor the Plans need to be dynamic and must After closing the sale, follow-
plan evolve with the need of the hour. So, up the customer to maintain
monitoring and reviewing the your relationship with them and
progress of the plan regularly and to know what are his/her
systematically is an important step concerns. In that way, he/she
in the financial planning process. may feel his value as a
customer to your business.
Learning Competency
Identify the steps in the financial planning process (Quarter 1, Week 3-4) ABM_BF12-IIIc-d-10
Exercise 1.
Directions. Multiple choice. Choose the best answer that corresponds to each question. Write your
answer in the space provided for you.
_____1. This steps in financial planning process means plan in action.
a. monitor plan c. implement the plan
b. develop the plan d. set goals or objectives
_____2. Gathering data includes the following EXCEPT.
a. interview c. observation
b. conducting survey d. promotion
_____3. In this financial planning process, blue prints are developed.
_____4. The following are characteristics of goal/objectives EXCEPT.
a. simple c. measurable
b. attainable d. timing
_____5. This financial planning process involves controlling function of financial managers

_____6. Financial resources include the following EXCEPT.
a. cash c. credit lines
b. checks d. land
_____7. It tells what the business firm wants to be.
a. mission statement c. financial statement
b. vision statement d. income statement
_____8. Financial information come from financial reports which include the following
EXCEPT.
a. statement of income c. notes to financial statement
b. statement of cash flow d. financial statement
_____9. In this financial planning process needed resources are collected.
a. set goals/objectives c. analyse data
b. gather data d. develop the plan
_____10. It describes what the firm wants to be and how statements are
developed.
a. set goals/objectives c. analyse data
b. gather data d. develop the plan
Exercise 2.
Direction: Answer the following questions based on your ability as financial planner in the
future of a business enterprise.
1. What are your feelings about putting your money in a piggy bank? Why do you think you
feel that way?
___________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
2. What are some of your earliest memories and resulting experiences of financial planning?
(e.g., first savings account, first piggy bank account, first paluwagan)
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
3. What are your financial strengths? What are your financial weaknesses?
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
4. How do you plan to save enough for college?
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Exercise 3.
Directions. Read each statement carefully and write T if the statement is correct. If the statement
is incorrect, write F. Write your answer on the space provided for.
_______1. The step “Analyze the data” means eliminating the least important factor that
would help in making decisions.
_______2. A short-term plan is most probably a strategic plan.
_______3. Chief Executive Officers are considered as operational planners.
_______4. A financial plan must be flexible.
_______5. Financial control is needed to maintain the continuity of the plan.
Exercise 4.
Directions: Determine what financial planning process is implied or suggested in each of the
items below. Write your answer on the space provided for.
1)To serve the Filipino community by providing great-tasting food and the most relevant
customer delight experience.
2) Mr. Moon, a financial advisor, noted that his client Miss Magan Da needs a retirement
plan instead of an investment plan based on the information provided to him.
3) Miss Any, a credit officer of Copyshop Finance, went to Pantubay Bank to know if Mr.
Mabuti maintains his bank account there.
4) Upon verifying the account of Mr. Mabuti, Miss Any found out that Mr. Mabuti incurred
a pass due account of one million. Therefore, she made a plan to refer it to the higher
management.
5) Kate, a human resource manager of Awe Company, collects the resume of every applicant
for the bookkeeper position for the first quarter of the year.
6) Awe Company hired three bookkeepers for their three branches in the region which was
recommended by the top management.
7) The Statement of Financial Position shows that the company’s asset for the year was 3
billion and 10% increment was expected for the coming year.
8) Fe, a sole proprietor who manages a grocery store, aims to be the number one leading
grocery store in the region.
9) Tim an industrial engineer of ABC Motors aims to introduce a new technology in terms of
payment of clients for easy monitoring on the products they offer in the market.
10) Observing the effect of the new normal system due to the COVID-19 pandemic in the
country’s stock market.
Exercise 5. Directions: Arrange the following statement based on the steps in financial planning
process. Write your answer in alphabetical arrangement in the space provided for.
_________1. Ana a financial adviser set her 10 heads of clients for the month.
_________2. Due to the reason that majority of her friends and relatives are victim of
investment scam she decided to study more on attracting customer.
_________3. She start calling her friends and relatives to offer her services.
_________4. She notice that out of 30 person she called only 5 responded to her.
_________5. She enrolled at Ace Promotion to develop her skills in attracting customer

Rubric for Scoring Exercise 2
Name:___________________________ Date:_________
Topic:___________________________ Hour:________
2 points: Poor quality, beginning, little evidence, needs improvement, does not meet
expectations, unsatisfactory.
3 points: Below average quality, developing, basic, some evidence, fair, approaches or partially
meets expectations, somewhat satisfactory.
4 points: Good quality, proficient, accomplished, sufficient evidence, good, acceptable, meets
expectations, satisfactory.
5 points: High quality, exemplary, highly proficient, strong, advanced, displays evidence
beyond, best quality, excellent, exceeds expectations, more than satisfactory.
Questions Points
What are your feelings about putting your money in a piggy bank? Why do you think
you feel that way?
What are some of your earliest memories and resulting experiences of financial
planning? (e.g., first savings account, first piggy bank account, first paluwagan)
What are your financial strengths? What are your financial weaknesses?
How do you plan to save enough for college?
Reflection:
What I have learned in this activity ________________________________________

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
References:
1. https://www.thebalance.com/the-6-steps-of-financial-planning-2466498
2. https://talentedge.com/articles/six-steps-financial-planning-process/
3. http://novella.mhhe.com/sites/0079876543/student_view0/senior_experience-999/you
Prepared by:
ZENITH T. DIMALANTA
Enrile Vocational High School
Writer

Answer Keys: 5. T
Exercise 4
Exercise 1 1. set goals/objectives
1. B 2. analysis of the data
2. D 3. gather data
3. C 4. develop a plan
4. D 5. gather data
5. A 6. implement the plan
6. D 7. monitor the plan
7. B 8. set goals/objectives
8. D 9. set goals/objectives
9. B 10. gather data
10. A
Exercise 2 Answers vary
Exercise 5
1. A
Exercise 3 2. D
1. T 3. B
2. F 4. C
3. F 5. E
4. T
Prepared by:
ZENITH T. DIMALANTA
Writer

BUSINESS FINANCE
Name: ____________________________ Grade Level: _________
Date: _____________________________ Date: _______________
FORMULA AND FORMAT FOR THE PREPARATION OF BUDGETS

AND PROJECTED FINANCIAL STATEMENT
Background Information for the Learners
Budget is a company’s annual financial plan. It is a set of formal (written) statements of

management’s expectations regarding sales, expenses, production volume, and various financial
transactions of the firm for the coming period. Budget consists of pro forma statements about the
company’s finances and operations.
SALES BUDGET – refers to the sales target (amount and/or quantity) set by management.
Usually is a percentage increase from prior period sales. The sales budget gives the quantity of
each product expected to be sold.
Formula:
Unit Sales = Sales Target ÷ Sales Price per unit

Sales Value to be reported in the Projected Income Statement = Unit Sales Target x Sales Price
per Unit
INVENTORY BUDGET
Formula:
Inventory to be reported in projected balance sheet= Unit sales target for the period + Safety
stock (Unit sales x safety stock percentage) x Inventory cost per Unit
PRODUCTION BUDGET – refers to the quantity of units to be produced/ manufactured.

Formula:
Required Production in Units = Expected Sales + Target Ending Inventories – Beginning

Inventories

DCP Company
Production Budget (In Units)
For the Year Ending December 31, 2015
QUARTER
1 2 3 4 YEAR
Projected Sales 20,000 22,000 25,000 30,000 97,000
Target level of Ending Inventories 3,000 3,500 5,000 3,500 3,500
Beginning Inventories 2,500 3,000 3,500 5,000 2,500
Required Production 20,500 22,500 26,500 28,500 98,000
The total Required Production in year is 98,000. The cost of production can be estimated
especially if the company has developed standard production cost per unit. This information can
also be used then in preparing projected financial statements and cash budgets.
PURCHASES BUDGET – refers to the quantity of raw materials to be purchased

Formula:
Units of raw materials to be purchased = Projected units to be produced x Raw materials

required per unit of inventory - Beginning raw materials inventory (units)
CASH BUDGET – refers to the amount of cash that is to be reported in the projected balance
sheet
Formula:
Cash to be reported in the Projected Balance Sheet = Beginning cash balance + Projected cash
inflow (collections, loan receipts, etc.) - - Projected cash outflow (inventory and loan payments,
salaries, wages, and other expenses)
Projected Financial Statements

Steps in the preparation of projected financial statement
1. Forecast sales
2. Forecast cost of sales and operating expenses
3. Forecast net income and retained earnings
4. Determine balance sheet items that will vary with sales or whose balances will be highly
correlated with sales
5. Determine payment schedule for loans
6. Determine external funds needed (EFN)
EFN = Change in Total Assets – (Change in Total Liabilities + Total Change in
Stockholders’ Equity)
7. Determine how external funds needed will be financed

EXAMPLE OF PROJECTED FINANCIAL STATEMENT
JSC Foods Corporation

Projected Statement Profit and Loss
For the year Ending December 31, 2015
2014 2015
Net Sales 52,501,085 57,751,194
Cost of Sales 41,954,730 46,148,979
Gross Profit 10,546,355 11,602,215
Operating Expenses 6,497,659 7,431,340
Operating Income 4,048,696 4,170,875
Interest Expense 250,000 270,000
Income before taxes 3,798,696 3,900,875
Taxes 1,139,609 1,170,262
Net Income 2,659,087 2,730,613
How the cost of sales was computed:

Cost of Sales Percentage in 2014 = (41954730÷52 501085) x 100%
Cost of Sales Percentage in 2014 = 79.91%
Projected Cost of Sales in 2015 = 79.91% x 57,751,194
Projected Cost of Sales in 2015 = 46,148,979
Illustrate the formula and format for the preparation of budgets and projected financial
statement (Quarter 1, Week 3-4) BF12-IIIc-d-11
Exercise 1. Directions: Encircle the correct answer in each of the questions below.
1. In what sequence would the following budgets be prepared?

1. sales budget
2. inventory budget
3. Production budget
4. purchases budget
5. cash budget
a. 4,5,1,2,3 b. 2,3,4,5,1 c. 1,2,3,4,5 d. 3,4,5,1,2
2. The main computation made in this budget is: Sales Target set by management divided by
sales per unit.
a. purchase budget b. production budget
c. sales budget d. inventory budget

3. The production department is preparing their budget for the year. Currently they are
identifying how much raw materials are needed for this year, what budget is the
production department preparing?
a. purchase budget b. production budget
c. sales budget d. inventory budget
4. What budget is this computation referring to?
Budgeted Sales(units) 10 K
20% set stock reserve 2K
15% inventory last period 1.5K
Budgeted inventory 10.5K
a. purchases Budget b. Sales Budget

c. Inventory Budget d. Production Budget
5. The production department is preparing their budget for the year. Currently they are
identifying how many production runs they need to do this year. What budget is the production
department preparing?
a. Production Budget b. Inventory Budget
c. Sales Budget d. Purchase Budget
Exercise 2: Supply the missing letters in the puzzle to answer the given questions.

Exercise 3: Directions: Compute the projected collection, sales budget, production budget and
cash budget and answer the questions below the given data.
1. Mel & James Inc. is doing their annual budgeting. They have the following information:
Given this data:

Average sale past 5 years $ 1,000,000
Sales target this year 10% increase from 5 yr. average sales
Sales price/unit $ 10.00
Safe Stock % 20% of total inventory
Raw Material/ unit 3 pcs
Cost per raw material $1.50
a. How much is the budgeted sales for this year?
b. How many units does Mel and James need to sell?
c. How many units does Mel and James need to produce?
d. How many raw material units does Mel and James need?
e. How much is the projected cost of raw materials?
2. Rhylinchai Corp has the following information:
Projecteed Monthly Sales $ 300,000

Cash Collection % in 1 Month 40 %
st
Cash Collection % in 2 Month 35%

nd
Cash Collection % in 3 Month 25%

rd
a. How much cash will Rhylinchai Corp collect in the 1 Month?

st
b. How much cash will Rhylinchai Corp collect in the 3 Month?

rd
3. HowtJean Corp has the following information:
Projected Monthly Sales $ 500,000

Projected Monthly Cost of Goods Sold $ 250,000
Projected Selling and Admin Expenses $ 50, 000
a. How much will HowtJean Corp have as their projected income statement?
b. How much is HowtJean Corp profit margin based on its projected income statement?

Exercise 4: Directions: Fill in the missing value of the following tables
ABC RESTAURANT & RESORT

Projected Statement Profit and Loss
For the year Ending December 31, 2017 - 2019
2017 2018 2019

Net Sales 35 336 643 38 340 257 42 174 283
Cost of Sales 29 329 413
Gross Profit 6 007 229
Operating Expenses 4 505 422 4 926 723 5 393 621
Operating Income 1 501 807
Interest Expense 300 000 450 000 250 000
Income before taxes 1 201 807
Taxes 360 542 457 357 765 146
Net Income 841 265
Exercise 5. Directions: Write TRUE if the statement is correct and FALSE if it is incorrect and
explain why it becomes false. Write your answer on the space provided for.
________1. The process of planning future business actions and expressing those plans in a formal
manner, usually in monetary terms, is called budgeting.
________2. The budgeting process can be used to promote a positive effect on employees'
attitudes, but it can also yield a negative one.
_______3. The task of preparing the budget normally is the responsibility of one department, the
controller's department or a department of one of the high-level managers.
_______4. Most successful businesses generally prepare their budgets from 'the top down'. These
budgets are tightly controlled by upper management.
_______5. Since the budget period normally coincides with the accounting period, budgets of less
than one year or greater than one year are not normally prepared.
_______6. When a company adds one increment of time to its budget period as one increment of
time expires, it is practicing continuous budgeting.
_______7. The cash budget is a financial budget.
_______8. The operating budgets provide all of the information necessary for the preparation of
the budgeted income statement.
_______9. Normally, the cash budget is the first sub budget prepared in the process of developing
the master budget.

_______10. A quantity of merchandise or materials that is held as inventory to compensate for
unexpected demand or delays in receipts from suppliers is called the just-in-time inventory stock.
Reflection
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
References:
Business Finance. Arthur S. Cayanan et.al.printed by Rex Printing Company, Inc. QuexBook
https://tools.mheducation.ca/college/larson10/student/olc/10fal_tf_26.html
https://tools.mheducation.ca/college/larson10/graphics/larson10fal_student/slideshow2/chap26_f
iles/v3_document.htm
https://tools.mheducation.ca/college/larson10/student/olc/10fal_chapreview_26.html
http://accounting-financial-tax.com/2010/08/how-to-make-budgets-complete-steps-wit
Prepared by:
MARY GRACE E. NARAG

Bayabat National High School
Writer

ANSWER KEY
Exercise 1 7. PURCHASE BUDGET

8. CASH
1. C 9. BUDGETING
2. C
3. A Exercise 3.
4. C 1. a. $ 1,100,000
5. A b. 110, 000 units
c. 132,000 units
Exercise 2 d. 396,000 units
e. $ 594,000
1. INVENTORY BUDGET 2. a. $ 120,000
2. CASH BUDGET b. $300,000
3. CASH INFLOW
4. CASH OUTFLOW 3. a. $ 200, 000
5. COST b. 40%
6. SALES BUDGET
Exercise 4
2017 2018 2019

Net Sales 35 336 643 38 340 257 42 174 283
Cost of Sales 29 329 413 31,822,412.56 35,004,654.07
Gross Profit 6 007 229 6,517,844.44 7,169,628.934
Operating Expenses 4 505 422 4 926 723 5 393 621
Operating Income 1 501 807 1,591,121.44 1,776,007.934
Interest Expense 300 000 450 000 250 000
Income before taxes 1 201 807 1,141,121.44 1,526,007.934
Taxes 360 542 457 357 765 146
Net Income 841 265 683,764.44 760,861.9335
Exercise 5
1. TRUE
2. TRUE
3. FALSE
# The task of preparing the budget should not be the sole responsibility of a single department.
The budget process should involve all departments in a 'bottom up' process.
4. FALSE
# A 'from the bottom up' approach is more useful and more acceptable to those responsible for the
activities covered by the budget.
5. FALSE

# Successful businesses often divide the annual budget into monthly or quarterly increments. And
they will often prepare 5-, 10-, and 15-year plans for major capital projects and long-range
objectives.
6. TRUE
7. TRUE
8. FALSE
# The capital expenditures budget must also be included. The capital expenditures budget is one
source of information for expected amortization and interest expense, and gains or losses from
asset disposals.
9. FALSE
# Normally, the sales budget is the first sub-budget prepared. Many of the other sub-budgets
(manufacturing, merchandise purchases, and others) are prepared on the basis of the data generated
through the sales budget.
10. FALSE
# What is described is called safety stock--the amount of inventory needed to avoid stock-outs and
delays in production or sales. 'Just-in-time' refers to an inventory system.
Prepared by:
MARY GRACE E. NARAG

Writer

BUSINESS FINANCE
Name of Learner:________________________________ Grade Level:_____________
Section:________________________________________ Date:___________________
MANAGING CASH, ACCOUNTS RECEIVABLES AND INVENTORIES
Cash, accounts receivables and inventories are considered liquid asset of an organization
which needs to be manage well. Cash refers to any medium of exchange that a bank will accept
for deposit at face value. It includes coins, currency, checks, money orders, bank deposits and
drafts. Accounts receivables are claims against customer arising from sale of services or goods on
a credit. Inventories are assets which are: a)held for sale in the ordinary course of business; b) in
the process of production for such sale; or c) in the form of materials or supplies to be consumed
in the production process or in the rendering of services. (PAS No. 2)
The following information sheet contains important information about the tools managing
in cash, accounts receivables and inventories.
Tools Description Instance Formula/ Proforma

Days of is the average A DI of 15
Inventory number of days to days means 𝐷𝑎𝑦𝑠 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
sell its inventory that on the =
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
average it
also known as takes 15 days 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
inventory to sell its 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑆𝑜𝑙𝑑
=
conversion period inventory. 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑟𝑜𝑦
2
or average age of 𝑜𝑟
inventories
𝐷𝑎𝑦𝑠 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
=
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑆𝑜𝑙𝑑 𝑃𝑒𝑟 𝐷𝑎𝑦
Days of Sales is the average time A DSO of 30
Outstanding for the company to days means 365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
𝐷𝑎𝑦𝑠 𝑜𝑓 𝑆𝑎𝑙𝑒 =
(DSO) collect its that a 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
receivables customer 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟
who 𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
=
purchased on (𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐴𝑐𝑐𝑡 𝑅𝑒𝑐 ′ 𝑙 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝐴𝑐𝑐𝑡 𝑅𝑒𝑐 ′ 𝑙)/2
the company
on account

will pay
his/her
balance in 30
days.
Cash also called the net It is Cash Conversion Cycle
Conversion operating cycle computed as = Operating Cycle - Days of Payables
Cycle the operating
is the length of cycle less Or
time it takes for the days of = (Days of Inventory + Days of
initial cash payable.
Receivables) - Days of Payables
outflows for goods
and services Note: If the
purchased CCC is
(materials, labor, negative, it
etc.) to be realized indicates that
as cash inflows the company
from sales (cash has excess
sales and in the cash to
collection of invest.
receivables)
Days of is the average A DPO of 50 365 𝑜𝑟 360 𝑑𝑎𝑦𝑠
Payables number of days for days means 𝐷𝑃𝑂 =
𝑝𝑎𝑦𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛 𝑜𝑣𝑒𝑟
Outstanding the company to pay that the
(DPO) its creditors company 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 𝑡𝑢𝑟𝑛 𝑜𝑣𝑒𝑟
waits for 50 𝑛𝑒𝑡 𝑐𝑟𝑒𝑑𝑖𝑡𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒
=
days before 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 𝑏𝑒𝑔. +𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑒𝑛𝑑
2
paying its
creditors.
Cash provides It is useful Size Company
Budgeting information for Cash Budget
regarding the identifying From the month
company’s future Cash Receipts 10,000
expected cash funding Less: Cash Disbursements 6,000
receipts and requirements
Net Cash Flows 4,000
disbursements over or excess
a given period cash within a Add: Beginning Balance 3,000
given period. Ending cash Balance 7,000
Less: Minimum Cash Balance 500
It allows Cumulative Excess Balance 6,500
managers to
see the Note: if the Balance is negative
seasonality of Cumulative Financing Requirement
the business
which affects
the cash
flows.

Cash include all of a Common Cash from sales 8,000
Receipts firm’s inflows ofcomponents Collection of accounts receivable 5,000
cash in a given are cash Other cash receipts 500
financial period sales, Total Cash Receipts 13,500
collections of
accounts
receivable,
and other
cash receipts.
Cash include all outlays Cash Cash purchases 12,000
Disbursement of cash by the firm purchases; Purchasing fixed assets 50,000
during a given Purchasing Payments of accounts payable 15,000
financial period fixed assets; Interest payments 1,500
Payments of Rent (and lease) payments 5,000
accounts Cash dividend payments 3,000
payable; Wages and salaries 5,000
Interest Total Cash Disbursement 91,500
payments;
Rent (and
lease)
payments;
Cash
dividend
payments;
Wages and
salaries;
Principal
payments
(loans); Tax
ABC a way to control Maintaining Inventory Class
A B C
Analysis inventory is to too much Money High Medium Low
classify inventory inventories Value
into a classification has costs Quality of Very Strict Not too
system such as Control Strict strict
Inventory Slow Relatively Fast
carrying or Movement Fast
holding costs, (flows)
possible
obsolescence
or spoilage.
Learning Competency with code

Explain tools in managing cash, receivables, and inventory (Quarter 1, Week 3-4)ABM_BF12-
IIIc-d-12

Directions/Instructions:
Exercise 1. From the Statement of Financial Position of ABCDE Company, find the value of cash,
accounts receivables, and inventories from the assumptions below.
ABCDE Company
Statement of Financial Position
As December 31, 2019
Current Asset:
Cash ______
Accounts Receivables ______
Allowance for doubtful accounts 20,000
Inventories ______
Other Current Assets 20,000
Total Current Asset 462,000
Non-current Asset:
Land 500,000
Equipment, net 133,000
Long-term investment 277,000
Total Non-current Assets 910,000
Total Assets 1,372,000
Current Liabilities:
Trade Payables 355,000
Notes Payable 187,000
other Payables 89,000
Total Current Liabilities 631,000
Non-current Liabilities
Bond Payables 455,000
Total Liabilities 1,086,000
Total Equity 286,000
Total Liabilities and Equity 1,372,000
Assumptions:
a) Cash is 75% of accounts receivable.
b) Accounts receivable is 40% of the value of the land.
c) Inventory is 38,000 lower than cash value.

Exercise 2. Identify the following accounts. Write C if the transaction is related cash, I if the
related to Inventories and A/R if related to accounts receivable. Write your answer on the space
provided for.
_____1. Sold goods in cash, 10,000.
_____2. Finish goods, 20,000.
_____3. Render services, 2,000.
_____4. Render services on account, 3,000.
_____5. Paid salaries in check, 5,000.
_____6. Purchase supplies for sale, 15,000.
_____7. Purchase raw materials, 6,000.
_____8. Paid current bill, 3,000.
_____9. Purchase merchandise for sale, 5,000.
_____10. Sold merchandise on account, 8,000.
Exercise 3. Write T if the underlined words make the statement correct. If the underlined words
make it incorrect, write the appropriate words to make the statement accurate. Write your answer
on the space provided for.
___________1. Aling Nena incurred 45 days of DPO in paying her payable, which
means Aling Nena waits for an additional 45 days before paying her credit.
___________2. Days of Sale Outstanding refers to the average number of days the
company pays its creditors.
___________3. Depreciation and other noncash charges are not included in the cash budget
___________4. ABC Analysis is a financial tool used to manage accounts receivables.
___________5. Cash receipts are considered as cash outflows of a company.
Exercise 4. Choose the best answer from the choices to complete the sentence. Write the letter of
your answer before each item.
______1. The _________ inventory in manufacturing business consists of all items

currently in the production process.
(a) finished goods
(b) capital goods
(c) raw materials
(d) work-in-process
______2. The _________ inventory in manufacturing business consists of items

that have been produced but not yet sold.
(a) finished goods
(b) capital goods
(c) raw materials
(d) work-in-process

______3. The three basic types of inventory in manufacturing business are
the following EXCEPT ____________ .
(a) raw materials
(b) work-in-process
(c) finished goods
(d) capital goods
______4. The _________ C’s of credit which refers to the willingness of the
borrower to repay the loan.
(a) Character
(b) Capacity
(c) Collateral
(d) Condition
______5. The following are cash disbursement items EXCEPT

(a) Loan interest to ABC Bank
(b) Purchase goods to Lakas Company
(c) Tax to BIR
(d) Dividend to stockholders
Exercise 5. Read carefully the situation below and perform what is asked for. Write your answer
in a clean sheet paper.
1. Malunggay Company is concerned about managing cash efficiently. On average,

inventories have an age of 120 days and accounts receivable are collected in 90
days. Accounts payable are paid approximately 30 days after they arise. The firm
has annual sales of about P35 million. Assume there is no difference in the
investment per peso of sales in inventory, receivables, and payables and that there
is a 360-day year.
a. Calculate the firm’s operating cycle.

b. Calculate the firm’s cash conversion cycle.
c. Discuss how management might be able to reduce the cash conversion cycle.
2. Khyneth Industries, a heavy equipment contractor, is developing a cash budget for

July, August, and September. Khyneth’s sales in May and June were 200,000 and
300,000 respectively. Sales of 400,000, 350,000, and 300,000 have been forecast
for July, August, and September respectively.
Historically, 25% of the firm’s sales have been for cash, 200,000, 175,000 and
200,000 generated accounts receivable collected for the second quarter of the year.
In September, the firm will receive a 50,000 dividend from stock in a subsidiary.

Required: Prepare the cash receipts section of the cash budget.
Reflection:
What I have learned in this activity _________________________________________

_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
References:
Department of Education Business Finance Teaching Guide
Fundamentals of Accountancy , Business and Management:Florendo, Joselito G (2016).
(1st ed.) Rex Book Store
Prepared by:
ZENITH T. DIMALANTA
Writer

Answer Key 3. T
4. inventories
Exercise 1 5. Cash inflows
a) 150,000
b) 200,000 Exercise 4 Multiple Choice
c) 112,000 1. D
2. A
Exercise 2 3. D
1. C 4. A
2. I 5. D
3. C
4. A/R Exercise 5
5. C Problem 1
6. I a. 120+90=210 days
7. I b. 120+90-45=165 days
8. C c. Reduce days to sell
9. I inventory, reduce days to
10. A/R collect accounts receivable
and lengthen payable payment
Exercise 3Modified True/False period without negatively
1. waits for 45 days affecting relationship with
2. Days Payable Outstanding suppliers.
Problem 2
Cash Receipts
Month May June July August September

Forecasted Sales 200,000 300,000 400,000 350,000 300,000
Cash sales (25%) 50,000 75,000 100,000 87,500 75,000
Collection of A/R 200,000 175,000 200,000
(50)
Other Cash 50,000
Receipts
Total Cash 300,000 262,500 325,000
Receipts
Prepared by:
ZENITH T. DIMALANTA
Writer

BUSINESS FINANCE
Name of Learner:_________________________________ Grade Level:_____________________
Section:__________________________________________ Date:__________________________

LOAN REQUIREMENTS FOR BANK AND NONBANK INSTITUTIONS

• A Banking Financial Institution (BFI) is a financial intermediary licensed to receive
deposits and make loans and may also provide financial services such as wealth
management, currency exchange, and safe deposit boxes.
Examples: BDO Unibank Inc., Metrobank, China Banking Corporation and Union Bank of
the Philippines
• A Non-bank Financial Institution (NBFI) is a financial institution that does not have a
full banking license or is not supervised by a national or international banking regulatory
agency. It also provides banking services but is not allowed to take deposits from the public.
BUSINESS FINANCE
Examples: Pawnshops, Insurance Firms, Venture Capitalists, Microloan Organizations and
Currency Exchanges
• A Loan is the lending of money to another party in exchange for repayment while Loan
Requirements are the documents that provide the essential financial and other information
about the borrower on which the lender bases the decision to lend.
• Short-term loan is a debt scheduled to be paid within a year while long-term loan is a
debt to be paid in more than a year.
• 5C’s of Credit - the institution’s primary consideration in approving loan applications are
• Character – the willingness of the borrower to repay the loan

• Capacity – a customer’s ability to generate cash flows
• Collateral – security pledged for payment of the loan
• Capital – a customer’s financial resources
• Condition – current economic or business conditions
Always Remember
• Loan requirements of an individual or a business may also vary depending on the standards
and needed documents of a certain lending institution. Even the loan application process
may also differ from one bank/nonbank institution to another.
Sample 1. The table below shows a comparison on the different requirements needed for salaried
employee’s personal loan application to a certain banking and nonbanking institution.
Banking Institution Nonbanking institution
( Banco De Oro/ BDO) (MLHUILLIER Financial
Services)
• A photocopy of at least two pieces of • Applicant must be 21- 65
identification (front and back such as years old
passport , a driver’s license or a PRC Id • Minimum annual salary
Personal • A photocopy of the latest BIR Form should be P180,000 or above
Loan 2316 or W2 signed by employer’s • Basic monthly salary is
Requirements authorized representative P15,000 or above
• A salary slip for the latest month • Government –issued photo
• Original Certificate of Employment and bearing ID (Passport, Driver’s
Income (COEI) issued in the last three License, SSS, PRC, etc.)
months that indicates status, length of • Original pay slip and /or latest
service and compensation Income Tax Return with BIR or
Bank stamp (BIR Form 2316)
Sample 2. The table below shows a comparison on the different requirements needed for business
loan application to a certain banking and nonbanking institution.
Banking Institution Nonbanking institution
( Banco De Oro/ BDO) (MLHUILLIER Financial Services)
• Copy of 1 valid ID • 1 valid government- issued
• Marriage contract (if I.D.
applicable) • Business Permit
• Photocopy of Audited • Proof of Income either payslip
Financial Statements for the for a full month or an Income
last 2 years with latest ITR Tax Record (ITR)
• Bank statements or Photocopy • A sales record or bank
Business Loan
of Passbook for the last 6 statement
Requirements
months • Proof of billing such as
for Sole
• Certificate of Business statement of account or receipt
proprietorship
Registration with DTI for electricity, water, or cable
• Business T.V.
Background/Company Profile • A credit billing card billing
which shows the applicant’s
• COLLATERAL AND SUPPORT address is also acceptable
DOCUMENTS
• Photocopy of title
• Lot plan with vicinity map
• Tax declaration

• Special Power of attorney
(SPA), if applicable
Compare and contrast the loan requirements of the different bank and nonbank institutions
ABM_BF12-IIIe-f-14 (Quarter 1, Week 5)
Exercise 1. Directions: Classify as BANK or NONBANK the following financial intermediaries.

Write your answer on the space opposite each financial institution.
Financial Institutions Answer

1. BDO Unibank Inc.
2. Bank of the Philippine Islands (BPI)
3. Landbank of the Philippines (LBP)
4. Palawan Express
5. Western Union
6. Citisavings Bank
7. ASA Philippines Foundation
8. Alalay sa Kaunlaran, Inc. (ASKI)
9. Eastwest Bank
10. Development Bank of the Philippines (DBP)
Exercise 2. Directions: Study and analyze well the given loan requirements in the box below.
Identify and match the requirements that are used to evaluate each of the 5C’s of credit or loan.
Write your answer on the space provided for in the table.
Interview Fully filled out loan application form NBI clearance Police Clearance
Income documents Company Profile Tax declaration Copy of TCT
Business Background Certificate of employment Trends in the financial statements
Income tax return Audited financial statements Statement of Assets and Liabilities
Building plan Latest news articles relating to the economic status of the company

5C’S of Credit Loan Requirements
CHARACTER
CAPACITY
COLLATERAL
CAPITAL
CONDITION
Exercise 3. Directions: Using the Venn Diagrams shown below, compare and contrast the
various loan requirements for Personal Loan (Exercise 3A) and Business Loan (Exercise 3B)
between Banco De Oro or BDO and MLHUILLIER Financial Services. Refer to Sample 1
and Sample 2 on page 2 of this activity sheet.
Exercise 3A. Personal Loan

Exercise 3B. Business Loan
Exercise 4. Directions: Read and analyze well the case presented below and identify the
needed information to be used in analyzing the 5C’s of Credit for the loan application of Mr.
Bawhal Luhmavas.
Mr. Bawhal Luhmavaz applied for a ₱1.5 million loan on behalf of his business, “Kim’s
Restaurant,” for additional capital in 2019. He is the Chairman of the Board of Kim’s
Restaurant. In their meeting, the Board decided to open an additional branch for the
restaurant. Kim’s Restaurant currently has 3 branches in Metro Manila and would like to open
up a small branch in Quezon City. Kim’s Restaurant has been in the business for 12 fruitful
years and has been a previous borrower of the bank. The company had previous late payments
before but the reasons are usually justifiable, and the balance of the loan, along with any
penalties, if any, is paid. The three branches earn a net income of ₱900,000/ year. The lot
where the main restaurant is located is pledged as collateral to the bank. This property is valued
at ₱2 million. Shown below is an excerpt from Kim’s Restaurant’s 2018 consolidated audited
financial statements.

As of December 2018 As of December 2017
Current Assets 1,200,000 900,000
Long-term Assets 4,400,000 4,200,000
Short-term Liability 500,000 460,000
Long-term Liability 2,300,000 3,500,000
Equity 2,800,000 1,140,000
Net Income 900,000 950,000
Cash Flow from Operations 500,000 450,000
5 C’s of Credits Needed Information from the given case of

Mr. Luhmavaz
CHARACTER
CAPACITY
COLLATERAL
CAPITAL
CONDITION
Exercise 5. In this activity, you can select one among the options for your performance-based
output.
1. Make a short infomercial on the importance of 5C’s of Credit during the loan application
2. Make an advertisement or promotional video encouraging people to apply for a Personal Loan
to Banco De Oro/ BDO Unibank Inc. (You can refer to Sample 1)

3. Make an advertisement or promotional video encouraging Business Owners to apply for a
Business Loan to Banco De Oro/ BDO Unibank Inc. (You can refer to Sample 1)
4. Make an advertisement or promotional video encouraging people to apply for a Personal Loan
to MLHUILLIER Financial Services. (You can refer to Sample 2)
5. Make an advertisement or promotional video encouraging people to apply for a Business Loan
to MLHUILLIER Financial Services. (You can refer to Sample 2)
6. Make an advertisement or promotional video encouraging people to apply for a Business Loan
or Personal Loan to any existing bank/nonbank financial institution in your locality. You may
interview someone who is working in that financial institution regarding the loan requirements
and procedure through phone call/text, messenger or email. You may also research on the
internet through the institution’s website (if applicable) the necessary details needed for your
performance.
(Performance-based output may either be an audio presentation, video presentation or live

presentation depending on the teaching-learning situation.)
Rubric for Scoring the Performance-Based output (if live presentation)
You may multiply the total points by 2 for 50 points or by 4 for 100 points.

Rubric for Scoring the Performance-Based output (if audio/video presentation)
Total Points:________
Note: You may multiply the total points by 2 for 50 points or by 4 for100 points.
Source: https://www.slideshare.net/mobile/cedecite/2rubric-assessment-video
Sources/References:
Department of Education- Business Finance Teaching Guide
https://www.slideshare.net/mobile/cedecite/2rubric-assessment-video
https://www.investopedia.com/terms/b/bank.asp
https://corporatefinanceinstitute.com/resources/careers/companies/top-banks-in-the-philippines/
https://www.investopedia.com/terms/l/loan.asp
https://mlhuillier.com/hello-world/
https://www.bdo.com.ph/business/loans

EXIT TICKET
3 things I learned
2 things I found interesting
1 question I still have
Prepared by:
CLAUDINE A. SEVILLEJA
SHS Teacher III- Sta. Teresita National High School
Writer

Answer Key:
Exercise 1
Financial Institutions Answer
1. BDO Unibank Inc. BANK
2. Bank of the Philippine Islands (BPI) BANK
3. Landbank of the Philippines (LBP) BANK
4. Palawan Express NONBANK
5. Western Union BANK
6. Citisavings Bank BANK
7. ASA Philippines Foundation NONBANK
8. Alalay sa Kaunlaran, Inc. (ASKI) NONBANK
9. Eastwest Bank BANK
10. Development Bank of the Philippines (DBP) BANK
Exercise 2
5C’S of Credit Loan Requirements
Interview, Fully filled out loan application form, NBI clearance, Police
CHARACTER Clearance
Income documents, Certificate of employment, Audited financial

CAPACITY statements, Income tax return
COLLATERAL Copy of TCT, Tax declaration, Building plan
CAPITAL Statement of Assets and Liabilities, Audited financial statements
Latest news articles relating to the company (if listed), Trends in the
CONDITION financial statements, Business Background/Company Profile

Exercise 3A (Learner’s answer may also vary. General comparison or similarity between the
entities is acceptable.)
Exercise 3B (Learner’s answer may also vary. General comparison or similarity between
the entities is acceptable.)

Exercise 4 (Learner’s answer may also vary. Other responses may be deemed acceptable as
long as the correct thought will be attained.)
5C’S of Credit Needed Information from the given case of Mr.

Luhmavaz
Check Kim’s Restaurant’s payment history and experience in the
CHARACTER business. The fruitfulness of the business proves Mr. Luhmavaz and the
BOD’s ability to manage the business well.
The positive income from the business and positive cash flows from
CAPACITY operations proves the borrower’s capacity. Current assets also show
that the borrower has funds easily available for repayment if necessary.
The term of the loan, should be adjusted to the cash flow of the
borrower.
The property pledged serves as collateral. Its value is usually greater
COLLATERAL than the loan to provide the bank security for sudden changes in value
of the collateral, as well as to compensate the bank for the collateral’s
illiquid nature.
CAPITAL The audit financial statements give a preview of the borrower’s

resources.
The income statement shows that the business is earning and is even
CONDITION growing. The business has already grown to 3 branches. This shows a
preview of the growth in the food industry. Learners may also research
on other business growth trends to know about macroeconomic
conditions
Exercise 5
This activity will be based on the given rubrics above. Learners may do live presentation or an
audio/video presentation.
Prepared by:
CLAUDINE A. SEVILLEJA
SHS Teacher II- Sta. Teresita National High School
Writer

BUSINESS FINANCE
Name of Learner: ______________________________ Grade Level: _______________
Section: ______________________________________ Date: _____________________
CALCULATION OF FUTURE VALUE AND PRESENT VALUE
The ability to calculate the future value and the present value of an investment is a
worthwhile skill. It allows you to make educated decisions about an investment or purchase taking
into consideration the return you may receive from the future.
Present Value is the amount you have to invest today if you want to have a certain amount
of cash flow in the future. On the other hand, Future Value is the amount that an investment will
grow into after earning interest. It is the principal plus total interest earned over a stated period.
There are different basic patterns of cash flow to consider in computing the present and
future value of money.
• Single amount (Lump Sum) is a scenario when a single cash outflow is made and the
total receipts will be at a single future date.
• Annuity is a periodic stream of equal cash flow at equal time intervals (annually, monthly,
etc.). For example, payment for a certain item shall be for 12 equal monthly installments
of ₱1,500.
• Mixed stream is a scenario when there are unequal periodic cash flows that present no
particular pattern. For example, payments made by the customer in 3 unequal installments.
TIME AMOUNT
1 installment ₱10,000
st
nd
rd
A. Present Value of a single amount
It answers the question; how much must be invested today to produce a certain amount in
the future. Since future value is calculated by multiplying the present investment by 1 +
interest rate compounded by the number of periods, we shall just reverse the process. This
method is called discounting.

Where
FV is how much she will have at the end or future value
PV is how much she has now or present value
T the number of years/period she will put the money
r is the interest rate she will earn on the money
Source: Business Finance TG pp.228
Illustration: You need ₱40,000 to buy a Xerox machine when you have your branch 2
years from now. How much should you invest if the interest rate is at 5% per annum?
PV = ₱40,000 /(1.05)2 = ₱36,281.18
You need to invest ₱36,281.18 to have ₱40,000 by the end of 2 years.
A. Future and Present Value of Mixed streams of cash flows
Future Value: You opted to invest in your savings account in MOR Bank at 7.5% per
annum. In the first year, you invested ₱5,000, second year ₱15,000 and ₱30,000 for the
third year. How much will you earn at the end of three years?
Factor multiplied by the Amount Deposited Future Value
(1.075)3=1.2423 ₱30,000 ₱37,269
(1.075)2=1.1556 ₱15,000 ₱17,334
(1.075)1=1.075 ₱5,000 ₱5,375
TOTAL FV ₱59,978
Present Value: Suppose you can buy a laptop for your business for ₱10,000 down payment
with ₱10,000 for each of the next two years or pay ₱28,000 today. Given an interest rate
of 9%, which is a cheaper alternative?
Present Value
₱10,000 ₱10,000
₱10,000/(1.09)1 ₱9,174.31
₱10,000/(1.09)2 ₱8,416.80
Total PV ₱27,591.11

It shows that installment basis is cheaper.
Future and Present Value of Ordinary Annuity
An annuity is a stream of equal periodic cash flows over a specific period. An ordinary
annuity payment is made at the end of each period (usually annually), while for an annuity
due, the cash flow occurs at the beginning of each period.
Illustration: Mr. Jympsy wishes to determine the value of his savings in 10 years if he will
put ₱10,000 per year in a bank which provides 5% per annum.
FV = 10,000 x (FVA factor: 12.57789) = ₱125,778.90

Calculate future value and present value of money (ABM_BF12-IIIg-h-18, Q1/ Week 6-8)
Exercise 1: Directions: Read and analyze the problems carefully. Show your complete solutions
on the space below each item.
1. Amanda deposited ₱10,500 in Producers Bank with an interest rate of 6% for 1 year. What
is the future value of the deposit?
2. MJ needs to save up for ₱150,000 in 1 year. How much should he save now if the bank
offers a rate of 7%?

Exercise 2: Directions: Supply the missing data on the table. Compute the present value and
future value of ₱1,000 taking into consideration the following rate and period covered. Show your
complete solutions below the given table.
r T PRESENT VALUE FUTURE VALUE
8% 5 years
5% 10 years
4.5% 4 years
2.5% 3 years
Exercise 3: Directions: Read and analyze the problem carefully. Write your answer on the space
provided for.
Marco won ₱100 million in the PCSO lottery. He was very excited to claim his prize for
he is planning to buy his dream car and house and lot. However, he was very disappointed when
the officer from the PCSO told him that he will not get his ₱100 million upfront. He, however, has
the following options:
Option 1 Get ₱80.1 million upfront

Option 2 Receive ₱10 million every year for 10 years
Option 3 Receive ₱20 million every year for 5 years
The present government bonds have an interest of 6% per annum.
What is the best option? Justify your answer by showing your complete solution.
Exercise 4: Directions: Read and analyze the problems carefully. Write your answer on the space
provided for.
4.1. What is the present value of the following cash flow stream if the interest is 7%? Show your
complete solutions.

Year Cash flow
1 ₱10,000
2 ₱25,000
3 ₱35,000
4.2. What is the present value of a 5-year annuity of ₱6,000 if the discount rate is 3%? Show your
complete solutions.
Exercise 5. Directions: Read and analyze the problem carefully. Write your answer on the space
provided for.
Alvin Jay, one of the heirs of MS Mega Shopping Malls inherited ₱100,000 when he was
25 years old. He was then convinced to deposit his money through a time deposit at Maharlika
Bank, bearing an interest rate of 5% annual interest.
Alvin Jay has been very successful in his career as the CEO of MS Megamall in the
Philippines but he somehow forgot that he placed ₱100,000 in the bank. He suddenly remembered
and was shocked at what happened to his money after 60 years.
5.1. What is now the value of AJ’s money? Show your complete solutions.

Exercise 6. Poster Making
Directions: Visualize yourself 10 years from now. Make a poster in the box on the next page
depicting the “future value” of your life considering the “present value” you are investing right
now. Create your poster here.
Rubrics for scoring

4 3 2 1 TOTAL/
CRITERIA COMME
NTS
Idea/concept There is a The concept The concept
has been good effort in has been /idea does
extremely the expressed not expressed
expressed expression of literally and at all and
CONCEPT and captures ideas/concept partly does not
the attention and captures captures the capture the
of the the attention attention of attention of
audience of the audience audience
immediately audience

The output The output The output The output
shows shows shows need shows
performance satisfactory improvement minimum
EFFORT
beyond what remarks for for the effort effort
is being the effort exerted
asked
The output The output The output The output
excellently satisfactorily fairly does not
displays the displays the displays the display at all
interrelation interrelation interrelation the
of of of interrelation
INTERRELATED
educational educational educational of
NESS
concepts and concepts and concepts and educational
real life real life real life concepts and
scenarios/ scenarios/ scenarios/ real life
experiences experiences experiences scenarios
experiences
Colors Colors Colors No color
used/combin used/combin used/combin used/combin
VISUAL IMPACT ation are ation are ation are ation
properly partly poorly performed
performed performed performed
TOTAL SCORE
REFLECTION:
Exit Ticket
Today, I learned
I could have
Next time, I need to
REFERENCES:
Business Finance TG for Senior High School

https://www.investopedia.com/terms/f/futurevalue.asp
https://www.investopedia.com/terms/p/presentvalue.asp
https://www.mathsisfun.com/money/present-value.html
https://www.thebalancesmb.com/how-to-calculate-the-future-value-of-an-investment-
393391
Prepared by:
JOSUE J. SOTOZA, JR.

SHS Teacher II-Baua National High School
Writer

ANSWER KEY
Exercise 1.
1. ₱10,500 x (1.06) = ₱11,130
2. ₱150,000/(1.07) = ₱140,186.92
Exercise 2.
r T PRESENT VALUE FUTURE VALUE
8% 5 years ₱680.583196 ₱1,469.32808
5% 10 years ₱613.913252 ₱1,628.89463
4.5% 4 years ₱838.561344 ₱1,192.5186
2.5% 3 years ₱928.599415 ₱1,076.89062
Exercise 3.
Option 1 = PV = ₱80.1 million

Option 2 = PV = ₱10 million x (PV Factor 7.36009) =₱73,600,900
Option 3 = PV = ₱20 million x (PV Factor 4.21236) =₱ 84,247,200
Option 3 is the best.
Exercise 4. 4.1
Year 1 ₱10,000/1.07 = ₱9,345.79439

Year 2 ₱25,000/(1.07)2 = ₱21,835.9682
Year 3 ₱35,000/(1.07)3 = ₱28,570.4257
TOTAL TOTAL ₱59,752.1883
4.2. ₱6,000 x (PV Factor 4.57971)= ₱27,478.26
Exercise 5. ₱100,000 x (1.05)60 = ₱1,867,918.59
Exercise 6. Answers vary
Prepared by:
JOSUE J. SOTOZA, JR.

SHS Teacher II-Baua National High School
Writer

BUSINESS FINANCE
Name: ____________________________ Grade Level: _________
Date: _____________________________ Date: ______________
COMPUTATION OF LOAN AMORTIZATION USING MATHEMATICAL

AND PRESENT VALUE TABLES
Background Information for the Learners (BIL)
“A PESO TODAY IS WORTH MORE THAN A PESO TOMORROW”
LOAN AMORTIZATION
What is an amortized loan?

An amortized loan is a loan with scheduled periodic payments that consists of both principal and
interest.
In general, with an amortized loan, the payment amount remains constant over the life of the
loan, the principal portion of each payment increases over the life of the loan.
Because interest is calculated based on the most recent ending balance of the loan, the interest
portion of the loan payment decreases as payments are made. This is because any payment in
excess of the interest amount contributes to reducing the principal, and this reduces the balance
in which interest is calculated.
Formula:
P = __r(PV)___
1 – (1+r)-n
where:
P = Payment
PV = Present Value
r = rate per period
n = # of periods in months
Example:
Ana borrowed $15,000 at 4.5% compounded monthly with monthly payments for 3 years.
Construct an Amortization Schedule on the present value table of her loan and how much is the
total payments and interest within the period?
Given: PV = $15,000
r = 4.5% 0.045 ÷ 12 months = 0.00375 rate in a month

n = 3 years 3 x 12 = 36 months
Solution:
First compute for the Payment
P = __r(PV)___
1 – (1+r) -n
P = (0.00375)($15,000)
1 – (1 + 0.00375) -36
P = 56.25
0.126
P = $ 446. 20
Month Payment Interest Unpaid Balance Unpaid

446.20 0.00375 Reduction Balance
0 $ 15, 000
1 446.20 56.25 389.95 14,610.05
2 446.20 54.79 391.41 14,218.64
3 446.20 53.32 392.88 13,825.76

4 446.20 52.85 394.35 13,431.41
5 446.20 50.37 395.83 13,035.58
. . . . .
. . . . .
. . . . .
36
The total payments will equal to $ 16,063.20 within 36 months. $ 15,000 is the principal
borrowed and the difference is $ 1,063.20 is the total interest over the 3 years period.
Learning Competency with code
Compute loan amortization using mathematical and the present value tables (Quarter 1, Week 6-
8)ABM _ BF12 – IIIg – h – 20
Directions/Instructions:
Exercise 1: IDENTIFY ME. Encircle the correct answer in every statement.
1. This is a loan with scheduled periodic payments that consists of both principal and interest.
a. amortized loan b. interest pay-out c. dept payment d. present value

2. In general, with an amortized loan, the payment amount ____over the life of the loan.
a. fluctuates b. decreases c. remains constant d. increases

3. In a loan amortization, generally the principal portion of each payment ____ over the life of
loan.
a. fluctuates b. increases c. decreases d. remains constant
4. In general with an amortized loan, the interest portion of each payment___over the life loan
a. increases b. fluctuates c. decreases d. remains constant
5. This is a schedule where the calculations of an amortized loan maybe displayed.
a. principal schedule b. pay-off schedule

c. interest amortization d. amortization table
6. The time value calculation used in amortizing a loan is:

a. future value of an annuity b. present value of a peso
c. future value of a peso d. present value of an annuity
7. This is the amount that would have to be deposited in one lump sum today in order to produce
exactly the same balance at the annuity’s maturity.
a. future value of ordinary annuity b. present value of an annuity

c. future value of an annuity d. present value of a peso
8. It is a percentage of the principal amount which represents the cost or fee for borrowing or
lending money.
a. interest rate b. capital c. principal amount d. interest
9. It is the product of the principal amount, rate of interest and the period of time.
a. simple interest b. Compound interest c. loan d. amount borrowed
10. This is simply earning interest on interest
a. simple interest b. Compound interest c. loan d. amount borrowed
Exercise 2: Encircle the correct answer
1.Vina borrowed money to her friend, Marie, worth ₱15,000 with an interest rate of 5% in a year.
How much is the interest of the borrowed money?
a. ₱ 750 b. ₱105 c. ₱800 d. ₱350
Use the problem below to answer number 2-4
Cathy invested P50,000 in a cooperative at 5% compounded annually for 8 years.
2. What is the value of (1 + r) ?

t
a. 1.48 b. 14.8 c. 0.148 d. 148

3. What is the future value?
a. 73782.77 b. 73872.77 c. 74872.77 d. 73782.77
4. What is its total interest?
a.23,872.77 b. 24,872.77 c. 22,872.77 d. 20,000.00
5. Lang – lang needs to pay her college fees of P15,806 quarterly for 3 years at 6.8%
compounded quarterly. Compute for the interest rate per compounding period.
a. 81.6% b. 1.7% c. 27.2% d. 6.8%
Exercise 3:
Using the data complete the data on the table

Installment loan amount: ₱50,000
Installment term: 1 year
Rate of interest: 3% in a year
PAYMENT INTEREST
MONTHS UNPAID BALANCE REDUCTION UNPAID BALANCE
4234.68 0.0025
50,000.00
1 4,234.68 125 4,109.68 45,890.32
2 4,234.68
3 4,234.68
4 4,234.68
5 4,234.68
6 4,234.68
7 4,234.68
8 4,234.68
9 4,234.68
10 4,234.68
11 4,234.68
12 4,234.68 0
Exercise 4: True or False. Write TRUE if the statement is correct and FALSE if incorrect.
______1. Loans that amortize, such as your home mortgage or car loan, require a monthly
payment.
______2. Every loan in a bank or any organizations are setting such interest.
______3. As more principal is repaid, the interest due on your principal balance each month will
decline
______4. As the required interest payment declines, the portion of the payment that goes toward
principal increases
______5. Car loans doesn’t imposed loan amortization.

Exercise 5: Solve the problem properly
1. The Perez family buys a house for ₱275,000, with a down payment of ₱55,000. They
take out 30 year mortgage for ₱220,000 at an annual rate of 6%.
a. Find the amount of the monthly payment needed to amortize this loan.
b. Find the total amount of the monthly payment over 30 years
c. Find the total amount of interest paid when the loan is amortized over 30 years.
2. A car cost $ 19,000. After a down payment of $ 2000, the balance will be paid off in 36
equal monthly payments with interest of 6% per year on the unpaid balance. Find the amount of
each payment.
REFLECTION:
Complete the statement below:
I learned that ___________________________________________________________________

______________________________________________________________________________
I enjoyed most on _______________________________________________________________

______________________________________________________________________________
I want to learn more on ___________________________________________________________

______________________________________________________________________________
REFERENCES:
Business Finance. Arthur S. Cayanan et.al.printed by Rex Printing Company, Inc.

QuexBook
General Mathematics. Edward M. Albay
https://www.mathsisfun.com/money/interest.html
http://teachtogether.chedk12.com/teaching_guides/view/415
https://www.wikihow.com/Calculate-Amortization
Prepared by:
MARY GRACE E. NARAG

Writer

ANSWER KEY
Exercise 1: IDENTIFY ME
1. A 6. D
2. C 7. B
3. B 8. D
4. C 9. A
5. D 10. B
Exercise 2
1. A
2. A
3. A
4. A
5. B
Exercise 3:
PAYMENT INTEREST
MONTHS UNPAID BALANCE REDUCTION UNPAID BALANCE
4234.68 0.0025
50,000.00
1 4,234.68 125 4,109.68 45,890.32
2 4,234.68 114.73 4,119.95 41,770.37
3 4,234.68 104.43 4,130.25 37,640.12
4 4,234.68 94.10 4,140.58 33,499.54
5 4,234.68 83.75 4,150.93 29,348.61
6 4,234.68 73.37 4161.31 25,187.30
7 4,234.68 62.97 4171.71 21,015.59
8 4,234.68 52.54 4182.14 16,833.45
9 4,234.68 42.08 4192.60 12,640.85
10 4,234.68 31.60 4203.08 8,437.77
11 4,234.68 21.09 4213.60 4224.12
12 4,234.68 10.56 4224.12 0
Exercise 4:
1. TRUE 2. TRUE 3. TRUE 4. TRUE 5. FALSE
Exercise 5:
1. Solution: PV = 220,000, r = 0.06/12 = 0.005 n = 30(12) = 360 months

P = __0.005(220,000)___
1 – (1+0.005) -360

a. P = 1319.01
b. 1319.01 x 360 = 474,843.60
c. 474,843.60 – 220,000 = 254, 843.60
2. Solution: PV = 17000, n= 36, r = 0.005
P = __0.005(17,000)___
1 – (1+0.005) -36
P = 517.17
Prepared by:
MARY GRACE E. NARAG

Writer

BUSINESS FINANCE
Name of Learner: _____________________________ Grade Level:________________
Section: _____________________________________ Date: _____________________

MATHEMATICAL CONCEPTS AND TOOLS IN COMPUTING FINANCE
AND INVESTMENT PROBLEMS
Investment decision requires careful analysis before pursuing it. Financial analysts evaluate
the different aspects of the investment whether it is feasible to pursue or not. They would consider
analyzing its profitability and cash flows of the investment. Mathematical tools and techniques in
analyzing investment decisions are considered helpful for the management. It guides them in
arriving at the most profitable and feasible investment. Hence, the following are the mathematical
tools and concepts in computing finance and investment problems or other known as capital
budgeting methods:
• Payback Period
• It refers to the length of time an investment is to be recovered.
• It is the time period where the total cash inflows are equal to the cost of initial
investment.
• Net cash inflows may be even (e.g., equal) or uneven (unequal). The payback period
is computed as follows: (Agamata, 2008)
Payback period (even cash flows) = Cost of InvestmentAnnual /Cash Flows
Payback period (Uneven Cash Flows) = Years before full recovery + (Unrecovered cost at
start of the year /Cash flow during the year )
Example 1: Cacatian Company wishes to procure a new equipment to increase the capacity of the
business. The equipment costs P60,000 in which it is estimated to have an annual cash flow of
P20,000 pesos. What is its payback period?
Solution:
Payback period = 60,000/20,000=3 years

Example 2: An investment of 2 million pesos can have an annual cash flows which are as
follows:
First Year P300,000

Second Year 450,000
Third Year 700,000
Fourth Year 940,000

Fifth Year Sixth Year 850,000
Required: Determine the payback period.
Solution:
Initial Investment: P2,000,000

Year Cash Inflow Cumulative cash inflow
1 P300,000 P300,000
2 450,000 750,000
3 700,000 1,450,000
4 940,000 2,390,000
5 850,000 3,240,000
Payback Period = 3+(550,000/940,000)= 3.59 years
• Net Present Value (NPV)

• This method is more sophisticated than the payback method since it considers the time
value of money and it considers all the cash flows during the life of the project including
the terminal value. (Business Finance Teaching Guide, 2016)
• The NPV can be computed by comparing the present value of cash inflows against the
present value of cash outflows. (Business Finance Teaching Guide, 2016)
• If NPV of a project is zero or positive, it should be accepted. In finance, if these projected

cash flows are realized, the NPV of the project should be equivalent to the increase
in total shareholder’s value. (Business Finance Teaching Guide, 2016)
Formula:
Where,
R = equal periodic cash inflows
i = periodic required rate of return or the discount rate
n = the number of periods during which the project is expected to operate and generate
cash inflows.
Example 3: Assume an investment requires an initial cash outflow of P200,000 and the
expected cash inflow is P45,000 for 6 years. If the required rate of return of the investment
is 7% what is its net present value?

Solution:
Example 4: A machinery requires an initial investment of P50,000. It is expected to have a

cash inflow of P12,000, P15,000, P20,000, P18,000, and P10,000 for the 1 year, 2 year, 3
st nd rd
year, 4 year, and 5 year, respectively. The machinery is probable to be sold for P2,000 on
th th
its fifth year. What it the NPV of the machinery if the discount rate is 12%?
Solution:
PV Factors:
Year 1 = (1+0.12)-1
Year 2 = (1+0.12)-2
Year 3 = (1+0.12)-3
Year 4 = (1+0.12)-4
Year 5 = (1+0.12)-5
• Accounting Rate of Return

• It measures the profitability of a proposed project.
• (Also known as simple rate of return) It is the ratio of estimated accounting profit of
a project to the average investment made in the project. ARR is used in investment
appraisal. (www.explaind.com)
• Accept the project only if its ARR is equal to or greater than the required accounting
rate of return. In case of mutually exclusive projects, accept the one with highest
ARR. (www.explaind.com)
Formula:
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆

𝑨𝑹𝑹 =
𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕

Example 5: An initial investment of a delivery vehicle costing P500,000 is expected
to generate annual cash flow of P120,000 for 6 years. The straight line method of
depreciation is used with respect to the delivery vehicle. It is expected that it has a
salvage value of P40,000 at the end of the 6 year. Calculate its accounting rate of return
th
assuming that there are no other expenses on the project.
Solution:
Apply mathematical concepts and tools in computing for finance and investment problems
(Quarter 1, Week 6-8) ABM_BF12-IIIg-h-21
Exercise I. Directions: True or False. Write TRUE if the statement is correct and write FALSE
if the statement is incorrect on the space provided for.
____________1. Net Present Value reveals how many years are required for the cash inflows
to equate to the cash outflow.
____________2. A short PB period is preferred as it indicates that the project would "pay for
itself" within a smaller time frame.
____________3. The Net Present Value of Project C is -97, therefore project must be accepted.
____________4. Payback Period is the simplest capital budgeting decision method.
____________5. In computing payback period, cash flows are considered.
Exercise II. Directions: Solve the following problems and choose the best answer among the
options . Write the letter of your answer on the space provided for and show your solutions in a
clear sheet of pad paper.
______1. Joevan Company is planning to establish a food cart business. The estimated total
investment requirement of the business is P150,000 and given a discount rate of 5%. The following
is the anticipated cash inflows of the proposed food cart business for 2 years. What is the payback
period of Joevan Company with respect to its food cart business?
Year Cash Inflows

1 P75,000
2 75,000
a. 1 year b. 2 years c. 3 years d. 4 years
_______2. From the problem above how much is the Net Present Value of the food cart business?
a. 10,544.22 b. 9,544.00 c. 10,454.22 d. 10,455.22

_______3. From item number 1, if P75,000 is earned on the 3 year of the project how many
rd
years would be its payback period?

a. 1 year b. 2 years c. 3 years d. 4 years
_______4. From item number 1, if P75,000 is earned on the 3 year of the project, how much
rd
would be its Net Present Value?

a. 45,243.60 b. 54,243.60 c. 54,424.60 d. 54,244.60
_______5. You are the investment manager of an appliance company. The industry is currently in
the expansion phase and the CEO would like to capture as much of the market share as possible.
You asked your analysts to submit project proposals as summarized below.
Project Discount Rate Investment Annual Cash Flow Project Life (Years)
A 10% P3,000,000 P1,000,000 5
B 12% 4,000,000 1,000,000 8
C 8% 5,000,000 2,000,000 4
D 8% 3,000,000 1,500,000 3
E 12% 3,000,000 1,000,000 6
Which projects should the manager choose? If you were given unlimited capital, which projects
should be implemented? (source: Business Finance Teaching Guide, 2016)
a. Project A b. Project B c. Project C d. Project D
Exercise III. Directions: Solve the following problems and present a clear solution for each item
in a whole sheet of pad paper.
Problem 1: Two investments require an initial investment requirement of P400,000 each.

The following are the expected cash inflows of the two projects:
Year Project A Project B

1 P160,000 P200,000
2 160,000 200,000
3 160,000 200,000
4 160,000
Required:
1.What is the payback period of each project?

2.Which investment is better if the cost of capital is 11%? Compute for the NPV of the two
projects.

Problem 2: Doronio Company is planning to put up a project in which he estimated a total
investment requirement of P2,000,000. He also expected that the project may bring cash
inflow to the business as follows:
Year Cash Inflow

1 P350,000
2 500,000
3 780,000
4 650,000
5 540,000
6 260,000
Required:
1.Compute the payback period of the project.
2.If discount rate is 14% for this type of investment, what is its NPV?
Problem 3: An equipment costing P500,000, with a residual value of P30,000 at its useful
life of five years is expected to bring the following net cash inflows:
Year Cash Inflows

1 P350,000
2 250,000
3 150,000
4 100,000
5 50,000
The company uses a 12% discount rate. Compute the NPV of the proposed project.
Problem 4: Joev Company is looking to invest some new machinery to replace its current
malfunctioning one. The new machine, which costs P420,000, would increase annual
revenue by P200,000 and annual expenses by P50,000. The machine is estimated to have a
useful life of 12 years and zero salvage value. What is the accounting rate of return of the
machinery?
Problem 5: Mary Joy Company is considering to invest in a project that requires an initial
investment of P200,000 for a machinery. There will be net inflows of P40,000 per year for
the first 2 years, P20,000 per year for the 3 and 4 year and P60,000 in the 5 year. The
rd th th
machine has a salvage value of P50,000. What is the accounting rate of return of the project?
Problem 6: The Fine Clothing Factory wants to replace an old machine with a new one. The
old machine can be sold to a small factory for P10,000. The new machine would increase
annual revenue by P150,000 and annual operating expenses by P60,000. The new machine
would cost P360,000. The estimated useful life of the machine is 12 years with zero salvage
value. What is the accounting rate of return of the project?
(source: www.accountingformanagement.org/)

Problem 7: JC Corporation is considering the following investment alternatives:
Net cash flows after tax

Project 1 Project 2 Project 3
Investment Requirement P5,000,000 P8,000,000 P1,400,000
Year 1 2,400,000 5,500,000 200,000
Year 2 2,200,000 2,600,000 600,000
Year 3 1,800,000 700,000 1,000,000
Year 4 1,100,000 200,000 800,000
Salvage Value 200,000 200,000 80,000
The company has P13,500,000 available money for investment. The company’s required
rate of return is 12%. Using the NPV method, in which project should the company invest
its money? (Agamata, 2008)
Reflection:

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________
References/Sources:
1.2016 • Basic Long-term Financial Concepts Pt. 5 • Teaching Guide for Senior High School:
Business Finance • Pages 268 – 281 • Commission on Higher Education
2.Agamata, Franlin T., MBA, CPA • 2008 • Capital Budgeting • Reviewer Management
Advisory Services • Pages 600 – 714 • GIC Enterprises and Co., Inc.
3.https://xplaind.com/
4. https://www.accountingformanagement.org/
Prepared by:
JOEVANNIE D. CACATIAN
Sanchez Mira National High School
Writer

Answer Keys
Exercise 1. Exercise 2
1. FALSE 1. B
2. TRUE 2. A
3. FALSE 3. B
4. TRUE 4. B
5. FALSE 5. C
Exercise 3
Problem 1:
*Project A is better since it has higher NPV.
Problem 2:
Year Cash Inflow Cumulative Cash Flow

1 P350,000 P350,000
2 500,000 850,000
3 780,000 1,630,000
4 650,000 2,280,000
5 540,000 2,820,000
6 260,000 3,080,000
➢ Requirement 1: Payback Period = 3+370,000/650,000= 3.57 years
➢ Requirement 2: NPV = P1,992.85

Problem 3: NPV = P227,511.46
Problem 4: ARR = 27.38%

𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 − 𝑺𝒂𝒍𝒗𝒂𝒈𝒆𝑽𝒂𝒍𝒖𝒆 𝟒𝟐𝟎, 𝟎𝟎𝟎 − 𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 = = = 𝑷 𝟑𝟓, 𝟎𝟎𝟎
𝑼𝒔𝒆𝒇𝒖𝒍 𝒍𝒊𝒇𝒆 𝒊𝒏 𝒚𝒆𝒂𝒓𝒔 𝟏𝟐
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 = 200,000 – 35,000 – 50,000 = 𝑃115,000

𝟏𝟏𝟓, 𝟎𝟎𝟎
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒊𝒏𝒈 𝑹𝒂𝒕𝒆 𝒐𝒇𝑹𝒆𝒕𝒖𝒓𝒏 = = 𝟐𝟕. 𝟑𝟖%
𝟒𝟐𝟎, 𝟎𝟎𝟎
Problem 5: ARR = 3%
𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 − 𝑺𝒂𝒍𝒗𝒂𝒈𝒆𝑽𝒂𝒍𝒖𝒆 𝟐𝟎𝟎, 𝟎𝟎𝟎 − 𝟓𝟎, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 = = = 𝑷 𝟑𝟎,𝟎𝟎𝟎
𝑼𝒔𝒆𝒇𝒖𝒍 𝒍𝒊𝒇𝒆 𝒊𝒏 𝒚𝒆𝒂𝒓𝒔 𝟓
𝟔, 𝟎𝟎𝟎
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒊𝒏𝒈 𝑹𝒂𝒕𝒆 𝒐𝒇𝑹𝒆𝒕𝒖𝒓𝒏 = = 𝟑%
𝟐𝟎𝟎, 𝟎𝟎𝟎
Problem 6:
𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 − 𝑺𝒂𝒍𝒗𝒂𝒈𝒆𝑽𝒂𝒍𝒖𝒆 𝟑𝟔𝟎, 𝟎𝟎𝟎 − 𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 = = = 𝑷 𝟑𝟎, 𝟎𝟎𝟎
𝑼𝒔𝒆𝒇𝒖𝒍 𝒍𝒊𝒇𝒆 𝒊𝒏 𝒚𝒆𝒂𝒓𝒔 𝟏𝟐
𝟔𝟎, 𝟎𝟎𝟎
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒊𝒏𝒈 𝑹𝒂𝒕𝒆 𝒐𝒇𝑹𝒆𝒕𝒖𝒓𝒏 = = 𝟏𝟕. 𝟏𝟒%
𝟑𝟔𝟎, 𝟎𝟎𝟎

Problem 7:
Using NPV as a criterion in evaluating the 3 projects, JC Corporation should choose Project 1 and
2 to invest its P13,500,000 since the two investments yield a positive NPV in which Project 1 has
the highest NPV of P1,004,061.62.
Prepared by:
JOEVANNIE D. CACATIAN
Sanchez Mira National High School
Writer

BUSINESS FINANCE
Name of Learner:_________________________________ Grade Level:________________
Section:_________________________________________ Date:_____________________

RISK AND RETURN TRADE-OFF

In this lesson, you will learn how risk, along with the return, as a major factor in making
effective financial decisions.
What is risk-return trade off? The risk-return trade-off is the concept that the level of return
to be earned from an investment should increase as the level of risk increases. The risk-return
trade-off signifies that the potential return rises with an increase of risks. Using this principle,
individuals associate low levels of uncertainty with low potential returns, and high levels of
uncertainty or risk with high potential returns. Based on this principle, invested money can render
higher profits only if the investor will accept a higher possibility of losses.
In making investment decisions, financial managers consider the estimated risk and
expected returns of the projects they are getting into. For every investment, there is always a risk-
return trade off, which is the correlation between the expected return and the risk of an investment.
It makes sense to demand a higher return for a riskier investment; otherwise, why risk losses? No
one would consider an investment that had risk unless the potential return on the investment
exceeds a safer investment; the greater the risk, the higher the potential return must be. Investment
managers usually set an acceptable payback period for projects. For making accept-reject
decisions, proposal projects which meet the set acceptable payback period shall be accepted and
those which not are rejected.
These are all in consideration to study and learn the rate of return, net present value, the
amount of time it takes to recover the cost of an investment (payback period), the relationship of
risk and expected return of investment and other factors affecting investment decisions.
The Rate of Return is a return on investment over a period. It could be profit or loss. It is
basically a percentage of the amount above or below the investment amount.
Here’s the Rate of Return formula:

Source:
https://www.google.com/search?q=current+value+minus+original+value+divided+by+original+value&tbm=isch&ved=2ahU
KEwi4mumrkOrpAhVZyZQKHbnWAXsQ2-cCe
Example:
An investor purchased a share at a price of ₱5 and he had purchased ₱1,000 shared in year
2017 after one year he decides to sell them at a price of ₱10 in the year 2018. Now, he wants to
calculate the rate of return on his invested amount of ₱5,000.
Solution:
Rate of Return = (Current Value – Original Value) * 100% / Original Value
Rate of Return = (₱10 * ₱1000 – ₱5 * ₱1000) * 100% / ₱5 *₱1000
Rate of Return = (₱10,000 – ₱5,000) * 100% /₱ 5,000
Rate of Return = ₱5,000 * 100% / ₱5,000
Rate of Return = 100%
Net Present Value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows over a period of time.
Present value of 1 table is used to find the present value of a single cash flow (payment or receipt)
that is expected to occur in future.
Source: https://www.accountingformanagement.org/present-value-of-1-table/

Example: Compute the net present value of the Project X with an initial investment of ₱95,000 and
desired rate of return is 11%. Use the data provided below.
Year Project X Cash inflow
0 (₱55,000)
1 ₱50,000
2 ₱50,000
3 ₱50,000
4 ₱50,000
Solution:
Year Project X Present Value Present Value

Cash inflow of 1 at 11% of Cash Flow
0 (₱55,000) (₱55,000) (₱55,000)
1 ₱50,000 0.901 ₱45,050
2 ₱50,000 0.812 ₱40,600
3 ₱50,000 0.731 ₱36,650
4 ₱50,000 0.659 ₱32,950
TOTAL ₱100,250
Initial investment (₱95, 000)
NET PRESENT VALUE ₱5,250
Payback Method is a method of evaluating a project by measuring the time it will take to recover
the initial investment.
B
Payback Period = A +
C
Where,
A is the last period number with a negative cumulative cash flow;
B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at
the end of the period A; and
C is the total cash inflow during the period following period A
The Profitability Index (PI) measures the ratio between the present value of future cash flows and
the initial investment.
Source:https://corporatefinanceinstitute.com/resources/knowledge/accounting/profitability-index/
Explain the risk-return trade-off (ABM_BF12-IIIg-h-22, Q1/Week 6-8)

Exercise 1
1.1 Mind Check
Directions: Arrange the jumbled letters inside the box to form the correct word that best define
each statement. Write your answer on the space provided before the item number.
*T I M E N V E S T N
*I N A A L N C I F K R I S
*S U S I N B E S KRIS
*E C T E P E D X ETURRN
*I N O R V T E S
___________________1. A monetary asset purchased with the idea that the asset will provide
income in the future or will later be sold at a higher price for a profit.
___________________ 2. It is risk that can lower a business's net assets or net income that
could, in turn, lower the return of any security based on it.
___________________3. It is simply a measure of probabilities intended to show the likelihood
that a given investment will generate a positive return, and what the likely return will be.
___________________4. Person allocates capital with the expectation of a future financial return
or to gain an advantage.
__________________5. It is a risk that a business will not be able to make payments due to its
debt load.
1.2. Investment Decision
Directions: Explain this case, “If you have ₱500,000 and wanted to deposit it into a savings
account, how long will it take to double your money?” Write your answer on the box below.
Guide Questions:
1. How will you apply the principle of financial risk?
2. How important is the financial decision for every investment purpose?

Exercise 2
2.1. Solving Problem (Rate of Return)
Directions: Compute for the rate of return from the given assumption below. (Note: Show your
solution on the box below.)
You are a manager of ZAGU Pearl Shakes Company. You are planning to put up an additional
branch at Tuguegarao City with an initial investment of P500,000 and expected to received
P700,000 in 1 year.
2.2. Solving Problem (Net Present Value)

Directions: Compute the net present value of the project if the minimum desired rate of return is
12%. Analyze the project proposal whether it is accepted or rejected. Refer to the data
provided below. Use the Present value of 1 table for NPV on page 2. (Note: Show your solution
on the box below.)
Cash Flow
Year 1 ₱115,000.00
Year 2 ₱87,000.00
Year 3 ₱66,000.00
Year 4 ₱55,000.00

Directions: Answer the following questions related to the net present value. Use the data provided
below. Use the Present value of 1 table for NPV on page 2. (Note: Show your solution on the box
below the table.)
Year Project A Project B
0 (₱150000) (₱150000)
1 ₱75, 000 ₱95, 000
2 ₱75, 000 ₱95, 000
3 ₱75, 000 ₱95, 000
4 ₱75, 000 ₱95, 000
1. If the opportunity cost of capital is 11%, which of these projects is worth pursuing?
Find the NPV of both projects.
2. Suppose you can only choose one of these projects. Which is more favorable to the firm given
that the discount rate remains at 11%? (Which has the higher NPV?)

Exercise 3 Mind Check
Directions: Read and analyze the statements carefully. Write TRUE if the statement is correct and
FALSE if it is false. Write your answer on the space provided for.
________________1. The present value of a cash flow depends on the interval of time between
now and the cash flow.
_________________2. If the present value of cash inflows is greater than the present value of the
cash outflows, the net present value is said to be positive and the investment proposal is considered
to be acceptable.
________________3. If present value of cash inflow is equal to present value of cash outflow, the
net present value is said to be zero and the investment proposal is rejected.
________________4. The rate of return is the gain or loss of an investment over a period of time
compared to the initial cost of the investment expressed as a percentage.
_______________5. If the present value of cash inflow is less than present value of cash outflow,
the net present value is said to be negative and the investment proposal is rejected.
Exercise 4 Case Analysis (Profitability Index)

Directions: Choose the most desirable investment proposal from the following alternati ves.
Provide your analysis by showing your computation on the box below the table.
Proposal Proposal Proposal
A B C
Present value of cash inflow ₱250,000 ₱170,150 ₱210,000
Investment required (₱230,000) (₱155,500) (₱198,700)
Net Present Value ₱20, 000 ₱14, 650 ₱11, 300

Exercise 5
5.1. Case Analysis (Payback Method)
Directions: Compute the payback period of medical equipment stated in the case below.
Determine whether or not the equipment would be purchased, if the maximum desired payback
period of the Private Hospital is 3 years. Provide your analysis by showing your computation on
the box below the case.
The Private Hospital is planning to purchase medical equipment. The equipment would cost
P500,000 and would have a useful life of 5 years with zero salvage value. The expected annual
cash inflow is P350,000

Directions: Read the case carefully. Determine which machine is the best to purchase according
to the payback method. Provide your analysis by showing your computation on the box below
the case.

5.3. Case Analysis (Cumulative Net Cash Flow)
Directions: Analyze the problem carefully. Compute the payback period of the investment.
Should the investment be made if management wants to recover the initial investment in 4 years
or less? Provide your analysis by showing your computation on the box below the case.
Rubric for Scoring for Exercise 1.2
ESSAY RUBRIC
Featu 4 Expert 3 Accomplished 2 Capable 1 Beginner

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Qualit Piece was written Piece was written Piece had little Piece had no style or
y of in an in an interesting style or voice
Writin extraordinary style and voice Gives no new
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Somewhat e some new poorly organized
informative and information
organized but poorly
organized
Gram Virtually no Few spelling and A number of So many spelling,

mar, spelling, punctuation spelling, punctuation and
Usage punctuation or errors, minor punctuation or grammatical errors that
& grammatical grammatical grammatical it interferes with the
Mecha errors errors errors meaning
nics
Source:
https://www.google.com/search?q=essay+rubric+sample&hl=en&sxsrf=ALeKk01iTXlkHdF9sz1aCyNE2TaKDUfdJg:15909772
16452&source=

Reflection:

In this activity, I learned
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________________________.
References/Sources:
https://www.accountingtools.com/articles/2017/5/13/risk-return-trade-off
https://thismatter.com/money/investments/investment-risks.htm
https://www.accountingformanagement.org/net-present-value-method/
https://xplaind.com/849768/payback-period
https://www.investopedia.com/terms/r/riskreturntradeoff.asp
https://www.educba.com/rate-of-return-formula/
Prepared by:
MC KINLY R. JARA
Gonzaga National High School
Writer

ANSWER KEY:
Exercise 1
1.1 Mind Check
1. INVESTMENT
2. BUSINESS RISK
3. EXPECTED RISK
4. INVESTOR
5. FINANCIAL RISK
1.2. Investment Decision
Answers vary
Exercise 2
2.1. Solving Problem (Rate of Return)
Rate of Return (ROR) = Current Investment- Original Investment
Original Investment
= ₱700,000- ₱500,000
₱500,000
= ₱200,000/ ₱500,000
= . 4 x 100%
= 40%
Cash Flow
Present Value Present Value
of 1 at 12% of Cash Flow
Year 1 ₱115,000.00 0.893 ₱102, 695
Year 2 ₱87,000.00 0.797 ₱69, 339
Year 3 ₱66,000.00 0.712 ₱46, 992
Year 4 ₱55,000.00 0.636 ₱34, 980
TOTAL ₱254, 006
Initial investment (₱230, 000)
NET PRESENT VALUE ₱4, 006
ANALYSIS: The proposed project is accepted because the amount of net present value
is positive.

1. Both. NPV is computed as follows:
Year Project Present Value Present Value
A of 1 at 12% of Cash Flow
0 (₱150,000) (₱150,000) (₱150,000)
1 ₱75, 000 0.901 ₱67,575
2 ₱75, 000 0.812 ₱60,900
3 ₱75, 000 0.731 ₱54,825
4 ₱75, 000 0.659 ₱49,425
TOTAL ₱82,725
Initial investment (₱70,000)
NET PRESENT VALUE ₱12,725
Year Project Present Value Present Value

B of 1 at 12% of Cash Flow
0 (₱150,000) (₱150,000) (₱150,000)
1 ₱95,000 0.901 ₱85,595
2 ₱95,000 0.812 ₱77,140
3 ₱95,000 0.731 ₱69,445
4 ₱95,000 _______
TOTAL ₱82,180
Initial investment (₱75,000)
NET PRESENT VALUE 7, 180
2. Project A, since it has a higher NPV
Exercise 3
3.1 Mind Check
1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. TRUE
Exercise 4
4.1 Case Analysis (Profitability Index Method)
Proposal Proposal Proposal

A B C
Present value of cash inflow ₱250,000 ₱170,150 ₱210,000
Investment required (₱230,000) (₱155,500) (₱198,700)
Net Present Value ₱20,000 ₱14,650 ₱11,300

Proposal A = ₱250,000/ ₱230,000 = 1.08
Proposal B = ₱170,150/ ₱155,500 = 1.09
Proposal C = 210,000/ ₱198,700 = 1.06
Proposal A has the highest net present value of ₱20,000 but is not the most desirable investment.
The present value indexes show proposal B as the most desirable investment because it promises
to generate 1.09 present values for each peso invested, which is the highest among the three
alternatives.
Exercise 5
Payback period = ₱500,000/₱350,000
= 1.43 years
Analysis: The purchase of medical equipment is desirable because the payback period is 1.43 years
which is shorter than the maximum payback period of the company.

Payback period of machine M: ₱43,000/₱11,000 = 3.91 years
Payback period of machine S: ₱35,000/₱11,000 = 3.18 years
Analysis: Machine S is more desirable than machine X because it has a shorter payback period
than machine M.
5.3. Case Analysis (Cumulative Net Cash Flow)
Cash inflow Cumulative Cash inflow

Year 1 ₱75,000 ₱75,000
Year 2 ₱60,000 ₱135,000
Year 3 ₱54,000 ₱189,000
Year 4 ₱45,000 ₱234,000
Year 5 ₱30,000 ₱264,000
Year 6 ₱27,000 ₱291,000
B
Payback Period = A +
C
Where,
A is the last period number with a negative cumulative cash flow;
B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at the end
of the period A; and
C is the total cash inflow during the period following period A

*Unrecovered investment at start of 5th year:
= Initial cost – Cumulative cash inflow at the end of 4th year
= ₱250,000 – ₱234,000
= ₱16,000
4 + ₱16, 000
₱30, 000
= 4.53 years
The payback period for this project is 4.53 years which is longer than the maximum desired
payback period of the management (4 years). The investment in this project is therefore not
desirable.
Prepared by:
MC KINLY R. JARA
Gonzaga National High School
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12

LEARNING ACTIVITY SHEETS

Printed by: DepEd Regional Office No. 02

Note: Practice Personal Hygiene Protocols at all times. i

Explain the major role of financial management ..................... 1

Distinguish a financial institution from financial ..................... 10

Explain the flow of funds within an organization- ..................... 23

Identify the steps in the financial planning ..................... 33

Illustrate the formula and format for the ..................... 39

Explain tools in managing cash, receivables, ..................... 48

Compare and contrast the loan requirements of ..................... 56

Calculate future value and present value of ...................... 68

Compute loan amortization using mathematical .................... 77

Apply mathematical concepts and tools in ..................... 84

Explain the risk-return trade-off ...................... 94

Note: Practice Personal Hygiene Protocols at all times. ii

LEARNING ACTIVITY SHEET

ROLES OF FINANCIAL MANAGEMENT AND THE DIFFERENT

Background Information for Learners

Roles of Financial Management

Note: Practice Personal Hygiene Protocols at all times. 1

The goal of financial management is to maximize the value of shares of stocks.

Note: Practice Personal Hygiene Protocols at all times. 2

Note: Practice Personal Hygiene Protocols at all times. 3

Note: Practice Personal Hygiene Protocols at all times. 4

VP FOR VP FOR VP FOR VP FOR

Exercise 4. Directions: Complete the given statement in each item by writing A if it is

______1. The shareholder in a corporation is considered as ______.

Note: Practice Personal Hygiene Protocols at all times. 5

Note: Practice Personal Hygiene Protocols at all times. 6

Note: Practice Personal Hygiene Protocols at all times. 7

Rubric for Scoring Exercises 3

Note: Practice Personal Hygiene Protocols at all times. 8

What I have learned in this activity:

• Department of Education Business Finance Teaching Guide

ABEMAILA L. DELA CRUZ

Note: Practice Personal Hygiene Protocols at all times. 9

ABEMAILA L. DELA CRUZ

Note: Practice Personal Hygiene Protocols at all times. 10

LEARNING ACTIVITY SHEET

FINANCIAL INSTITUTION, FINANCIAL INSTRUMENT

Background Information for Learners

Financial institutions/ intermediaries are organizations that perform certain financial

Some of the major categories of financial institutions are Commercial Banks,

TYPES OF FINANCIAL INSTRUMENTS:

Note: Practice Personal Hygiene Protocols at all times. 11

(Mariano, N.L. (2017) Capital Markets. Rex Book Store)

Now, try this!

Note: Practice Personal Hygiene Protocols at all times. 12

Note: Practice Personal Hygiene Protocols at all times. 13

_____3. All investments are risky.

_____5. Mutual funds are pools of money managed by an investment bank.

_____6. Financial intermediaries are very important in the capital marketplace.

_____9. The most common example of a debt instrument is the bond.

Note: Practice Personal Hygiene Protocols at all times. 14

Note: Practice Personal Hygiene Protocols at all times. 15

Note: Practice Personal Hygiene Protocols at all times. 16

BANKS LOGO RESPECTIVE

2. Robinsons Bank Corporation

3. Land Bank of the Philippines

4. Philippine Veterans Bank

5. Philippine Business Bank

7. Sterling Bank of Asia

9. Country’s Builder Bank

1. The shareholder in a corporation is considered as .