1. The net present value for the investment is negative $ 72,790.37.

Thus, recommended not to

take the investment. Computation is as follows:

Year 0 Year 1 Year 2 Year 3

Net Initial investment ($475,000)
Cash savings $105,000 $105,000 $105,000
$175,000 x (1-.4)
Depreciation Tax Shield 47,500 72,200 70,300
(475,000 X MACRS x
40%)
After Tax Cash InFlow 152,500 177,200 175,300
PV Factor @ 12% .8929 .7972 .7118
Present Value of Cash $136,167.25 $141,263.84 $124,778.54
Inflow

Net Present Value = Present Value of Cash Inflow – Present Value of Cash outflow

Net Present Value = (136,167.25 + 141,263.84 + 124,778.54) – 475,000

Net Present Value = 402,209.63 – 475,000

Net Present Value = ($72,790.37)

2. The following is the order of claims for creditors in a bankruptcy:

a. Administrative expenses related to the filing of the bankruptcy petition such as legal
fees and court fees.
b. Claims by creditors that arises from the creditor’s normal course of business.
c. Wages by employees within 90 days from the filing of the bankruptcy petition.
Maximum of $2000 per employee.
d. Claims for employee benefits rendered 180 days from the filing of the bankruptcy
petition. Maximum of $2000 per employee.
e. Claims by customers who made cash deposits which the firm did not render the goods
or services. Maximum of $900 per customer
f. Taxes owed
g. Unsecured claims by filed by creditors on time or tardily filed without their knowledge
of the bankruptcy.
h. Unsecured claims filed by creditors with them knowing of the bankruptcy.
i. Fines and punitive damages.
j. Interest accrued to claims after the file of petition.

3. Risk Management Process

a. Risk Identification
 b. Risk Assessment
c. Risk Prioritization
d. Risk Planning
e. Risk Monitoring
4. Components of ERM
a. Internal environment
b. Objective Setting
c. Event identification
d. Risk assessment
e. Risk response
f. Control activities
g. Information communication
h. Monitoring
5. What is initial public offering?

When a company goes public for the first time, its first issue of shares to the public is called
Initial Public offering. It is usually done by small companies to gain capital for expansion. Large
companies also do initial public offering in order for their stocks to be publicly traded. When a
company do initial public offering, information about the company will be available to the
public. IPO can only be done once. Transaction in an IPO is between company to company. On
the other hand, in a secondary market, transaction occurs between a company and the third
party. Stocks can be re-traded in a secondary market.

6. What is Beta?
Beta is a measure of a systematic risk. Systematic risk is risk subject to all investments. It
represents the correlation between the historical return of a given stock vs the historical return
of average stock in a market. It measures the sensitivity of the investment returns to the
changes on the market returns. A beta equal to 1 is a beta of the market as a whole. The
movement of return of the individual security is exactly the same with the movement of the
return in the market. A beta greater than 1 means that the individual security is more volatile
than the market return. When the beta of an individual security is less than 1, this means that
the individual security is less volatile than the market as a whole. A beta of zero means that
there is no correlation between the individual security return and the market return. If beta is
negative, movement of the individual security is at the opposite direction with the movement of
the market as a whole.

7. What is CAPM?
Required rate of return = risk free rate + (market return – risk free rate) X beta. A Capital Asset
Pricing Model uses a portfolio’s risk in the form of beta, the risk free rate approximated by the
US Treasury bill and the market return to determine the required rate of return for the security
or portfolio. A risk free rate is the return an investor receives from a riskless asset. The market
return is the required return on the average stock in the market. The risk premium for the
market (Rm-Rf) is the difference between the markets required rate of return and the risk free
rate. It measures additional return over and above the risk free rate that an investor demand in
 order to move the investment into the security market line. The risk premium for the portfolio
B(Rm-Rf) is what the investor requires to purchase the stock.

8. What is the use of CAPM?

CAPM is used by investors to price investments so that expected return on the security will be
equal to the risk free rate plus a risk premium associated to the risk for the security or portfolio.

9. Difference between Common shares and preferred shares?

The difference between common shares and preferred shares are as follows:
Common shares:
 Provides equity ownership in a corporation
 Holder has a voting right
 Subordinate to all bonds and preferred shares
 No guarantee for return
 No expiration date
 Have preemptive rights

Preferred shares:

 A hybrid of bonds and common stocks

 Holder has no voting rights
 Provides partial ownership in a corporation
 Dividends not paid can be accumulated
 Usually have a stated, call or redemption price
 Have a convertible feature where holders can convert it to common stock

10. What is the role of investment bankers?

Investment bankers serves as intermediaries between an investor seeking for investments and
businesses, government and other entities seeking to raise capital. Their main role is to advise
the firms and government on how to meet their financial challenges and to help them procure
financing whether from stock offering, bond issues or through derivative products.

11. Ethical standards:

a. Competence
i. Maintain appropriate level of professional leadership and expertise by
enhancing knowledge and skills
ii. Perform professional duties in accordance with law, regulations and technical
standards.
iii. Provide decision support and information that are accurate, concise, clear and
timely.
iv. Recognize and help manage risk.
b. Confidentiality
i. Keep information confidential except when disclosure is authorized or legally
required.
 ii. Inform all relevant parties regarding use of confidential information. Monitor to
ensure compliance
iii. Refrain from using confidential information for unethical or illegal advantage.
c. Integrity
i. Mitigate actual conflict of interest. Advise all parties of any potential conflict of
interest.
ii. Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
iii. Abstain from engaging in or supporting any activity that might discredit the
profession
iv. Commute to a positive ethical culture and place integrity of the profession
above personal interest.
d. Credibility
i. Communicate information fairly and objectively.
ii. Provide all relevant information that could reasonably be expected to influence
an intended users’ understanding of the reports, analysis and
recommendations.
iii. Report any delays or deficiencies in information, timeliness processing or
internal controls in conformance with organization policy and/or applicable law.
iv. Communicate professional limitations or other constraints that would preclude
responsible judgment or successful performance of an activity.

What is product life cycle and PDLC Stages?

A product life cycle is the time the company makes initial research and development on the
product until the company no longer offers customer servicing to the product. There are five stages in a
product life cycle: product development stage, introduction stage, growth stage, maturity stage and the
decline stage.

1. Product development stage – in this stage, there are no sales yet thus no revenue. The company
only incurs investment costs.
2. Introduction stage – marketing objective of this stage is to introduce the product to the market
and create trial of the product. Pricing at this stage is usually the highest. But sometimes
companies sets a low price for this stage in order for them to gain market. This is through a
market penetration pricing strategy.
3. Growth stage – at this stage, competition begins to grow. Prices are decreased due to high
competition. Marketing objective for thus stage is to maximize market share.
4. Maturity stage - this stage usually lasts longer than the other stages. Sales peak during this
stage and prices are deacreasing. Marketing objective for this stage is to maximize profit while
maintaining the market share.
5. Decline stage – in this stage, more firms withdraw from the maket. The marketing objective for
this stage is to milk or make the most out of their product. The price will probably be cut off in
this stage. The last option is to drop the product from the market

What is sensitivity analysis?

 Sensitivity analysis is calculating the effect of possibilities such as changes in market price of the
product.

What is breakeven point?

Breakeven point is the level of sales in which there is no profit. Fixed costs is covered by the
contribution margin. This is the point where contribution margin is equal to the total fixed expenses or
where total sales is equal to the total fixed expenses.