TEST I: ESSAY

1. Explain the three(3) decision areas in finance.

2. Why is cash flow more important than accounting income?
3. Why is market value more important than book value?

TEST II: CASE STUDY

The J.B Chavez Company has experienced two consecutive years of improved sales and foresees the
need to increase its investment in inventories and receivables to meet yet a third year of increased
sales. Chavez’s financial manager, J.B Chavez, recently approached the company’s bank to discuss the
possibility of extending the firm’s line of credit to cover firm’s projected future fund requirements. The
financial statements for the firm are shown below:

Balance Sheet
As of December 31, 2017 & 2016

2016 2017
Assets
Cash ₱ 225 ₱ 175
Accounts Receivables 450 430
Inventory 575 625
Current Assets ₱ 1,250 ₱ 1,230
Plant & Equipment 2,200 2,500
Less: Accumulated Depreciation 1,000 1,200
Net Plant and Equipment ₱ 1,200 ₱ 1,300
Total Assets ₱ 2,450 ₱ 2,530

Liabilities and Owner's Equity

Current Liabilities
Accounts Payable ₱ 250 ₱ 115
Notes Payable-Current - 115
Current Liabilities ₱ 250 ₱ 230

Non Current Liabilities

Bonds 600 600
Owner's Equity:
Paid up capital 900 900
Retained earnings 700 800
Total Owner's Equity ₱ 1,600 ₱ 1,700
Total Liabilities and Owner's Equity ₱ 2,450 ₱ 2,530