MULTIPLE CHOICE:

1. Which of the following statements is correct?

a. The stockholder’s equity is a major component of working capital.
b. Net working capital is the difference between quick assets and current liabilities.
c. Working capital is a measure of long-term solvency.
d. Net working capital is the difference between current assets and current liabilities.
2. The primary objective of working capital management is to.
a. Maximize the company’s total current assets.
b. Minimize the company’s total current liabilities.
c. Balance the amount of current assets and current liabilities.
d. Achieve a balance between risk and return.
3. In a conservative or relaxed working capital financing policy,
a. Operations are conducted on a minimum amount of working capital.
b. Operations are operated with too much working capital.
c. Short-term liabilities are used to finance not only temporary current assets, but also part or
all of the payment current assets requirements.
d. The company is exposed to risk of illiquidity because of low working capital position.
4. Financing inventory build-up with long-term debt is an example of
a. A conservative working capital policy,
b. Matching policy
c. An aggressive working capital policy
d. Hedging policy
5. The hedging approach to financing involves
a. The use of long-term debt to finance current assets
b. The use of short-term debt to finance non-current assets
c. Matching maturities of debt with specific financing needs
d. Issuance of common stocks to raise funds or working capital requirements
6. Which of the following is incorrect?
a. Profitability varies directly with liquidity
b. The greater the risk, the greater is the potential for larger return
c. Long-term financing has less liquidity risk than short-term financing, but has a higher explicit
cost, hence lower return
d. More current assets lead to greater liquidity, but yield lower returns
7. Which of the following statements is true?
a. Short-term debt is usually more expensive than long-term debt
b. Liquid assets do not ordinarily earn higher returns relative to long-term assets, so holding
the former will maximize the return on total assets
c. A conservative working capital policy is characterized by higher current ratio and acid-test
ratio.
d. Determining the appropriate level of working capital for a firm requires changing the firm’s
capital structure and dividend policy
8. The length of time it takes for the initial cash outflows for goods and services to be realized as
cash inflows from sales is called
a. Product life cycle c. Vicious cycle
b. Manufacturing cycle d. Cash conversion cycle
9. If the average age of accounts payable is 15 days, the average age of accounts receivables is 60
days, and the average age of inventory is 10 days, the number of days in the operating cash
conversion cycle is
a. 70 days c. 55 days
b. 85 days d. 60 days
10. The following dare are given taken from the records of Apple Corporation for the year ended
December 31, 200B
Net credit sales P576,000
Average materials 8,000
Average finished goods inventory 12,000
Average accounts receivable 80,000
Average accounts payable 5,000
Net credit purchases 120,000
Raw materials used 96,000
Gross profit rate 25%

What is the average number of days in the company’s operating cash conversion cycle? (Use a
360-day year)

11. An objective of cash management is to

a. Maximize the cash balance to avoid the risk of illiquidity
b. Minimize the cash balance to maximize the return from the idle cash
c. Invest cash for a return while retaining sufficient liquidity to satisfy future needs
d. Reserve as much cash as possible for potential investment opportunities
12. In cash management, the difference between the bank balance for a firm’s account and the cash
balance that the firm shows on its own books is called
a. Float c. Interest income
b. Bank charges d. Reconciling item
13. Banks sometimes require its borrowers to maintain a certain percentage of the face amount of a
loan which the bank requires its borrowers to keep in a non-interest bearing current account.
This is called compensating balance, which
a. Decreases the effective rate of interest paid by the borrower
b. Compensates the bank for services rendered by providing it with deposits of funds
c. Represents repaid interest on a loan
d. Cannot be used for disbursements by both the borrower and the bank
14. A working capital technique that increases the payable float and therefore delays the outflow of
cash is
a. Electronic data interchange (EDI)
b. Automatic fund transfer (AFT)
c. A draf
d. Baumol cash management model
15. Company A grants credit terms of 30 days to Company B. The operating cycle of Company B is 20
days. In this case, Company A
a. Is, in effect, financing more than Company B’s inventory needs
b. Is, in effect, financing less than Company B’s inventory needs
 c. Will have a lower level of accounts receivable than those companies granting shorter credit
terms
d. Can be sure that Company B will be able to convert its inventories into cash before payment
is due
16. A change in a seller’s credit policy has caused the following:
 Sales decreased
 Discounts taken decreased
 Investment in accounts receivable increased
 The number of doubtful accounts increased

Based on this information, we can say that

a. The company increased the rate of discount offered

b. Net profit has decreased
c. Gross profit has increased
d. The average collection period has increased
17. For a manufacturing firm, the most direct way of preparing a cash budget requires incorporation
of the following, except
a. Sales projections and credit terms
b. Collection percentages and other cash receipt
c. Estimated purchases and payment terms and other cash disbursement
d. Projected net income and depreciations expenses
18. Belle Company’s average monthly cash receipts is P1,500,000. Its average collection period is ten
(10) days. A collection agency has offered to be the company’s collector and shorten collection
period to four (4) days for a monthly fee of P1,500. The company can invest its excess funds in
money market placement at a rate of 8%.

If the collection agency’s offer is accepted, Belle Company’s net annual benefit (loss) is

a. P6,000 c. P270,000
b. (6,000) D. P500
19. Onor Corporation had income before tax of P100,000 for the year. Included in this amount was
depreciation expense of P20,000, bond discount amortization of P18,000, and the amount paid
for salaries and wages of P30,000. The estimated cash flow for the year is
a. P100,000 c. P138,000
b. P 62,000 d. P120,000
20. Annabelle Corporation is engaged in a multi-level marketing business that presently requires all
sales agents to mail checks to its Manila office. An average of three days is required for mailed
checks to be received, one day for Annabelle Corporation to process them and three days to
clear through its banks.
The company’s treasure proposed a change in the system, where the checks will no longer be
mailed to Manila office. Instead, checks collected will be deposited on-line in any branch of the
company’s depository bank, and the deposit slips, as well as the other pertinent documents will
be sent by fax or e-mail to the Manila office on the same day. The original deposit slips and other
documents will be submitted by the sales agents to Manila when they attend the Sales Agents
Monthly Meeting.
 The new system will eliminate the mailing float and the processing time. Annabelle Corporation
has an average daily collection of P50,000.
If the new system is implemented, Annabelle Corporation’s average cash balance will increase by
a. P50,000 c. P350,000
b. P150,000 d. P200,000
21. Majority of Aning Company’s customers are farmers from remote rural areas. Farmers Bank has
offered to provide Aning Company a lockbox system at a fixed fee of P300 per month and a
variable fee of P2 for each payment processed by the bank.
Aning Company receive 30 payments per day, averaging P5,000 per payment. With the lockbox
system, the company’s collection float will decrease by 3 days. Money market securities earn 5%
per annum.
Should Aning Company accept Farmers Bank’s offer to provide a lockbox system? (Use 360 days
in a year)
a. Yes, because it would earn additional income of P22,500 per year
b. Yes, because it would earn net benefit of P2,700 from the lockbox system.
c. No, because the cost of the lockbox system is P2,700 more than the expected return on
money market placements.
d. No, because the lockbox system would require the company to spend P25,000 per year.

ITEM 22 and 23 ARE BASED ON THE FOLLOWING INFORMATION:

Ben Corporation uses the Baumol Cash Management Model to determine its optimal cash
balance. The formula is:

Optimal Cash Balance = √ 2TD/i

Where: T = transaction cost which is a fixed amount per transaction. It includes the cost of
securities per transaction or the cost obtaining a loan

I = The interest rate in marketable securities or the cost borrowing cash

D = total demand of cash over a period of time

For the coming year, the expected cash disbursements total P432,000. The interest rate on
marketable securities is 5% per annum. The fixed cost of selling marketable securities is P8 per
transaction,

22. Using the Baumol Cash Management Model, the company’s optimal cash balance is
a. P11,757.55 c. P142,000.00
b. P5,878.78 d. P1,175.76
23. Using the Baumol Cash Management Model, the average cash balance is
a. P11,757.55 c. P142,000.00
b. P5,878.78 d. P1,175.76
24. Which of the following items is not a marketable security?
a. Treasury bills
b. Commercial papers
 c. Central Bank Certificates of Indebtedness (CBCIs)
d. Convertible Bonds
25. When managing cash short-term investments in marketable securities, the treasury of a
corporation is primarily concerned with
a. Liquidity and safety c. Maximizing risk
b. Maximizing the rate of return d. Tax avoidance
26. An objective of accounts receivable management is to have both the optimal amounts of
receivables outstanding and bad debts. The balance requires the trade-off between the benefit
of more credit sales and
a. The cost of sales.
b. More bad debts
c. The cost of accounts receivable, such as collection, interest and cost of bad debts
d. A high account receivable turnover
27. Following are ways of accelerating collection of accounts receivables, except
a. Shorten credit terms
b. Minimize negative float
c. Age accounts receivables
d. Offer special discounts to those who pay promptly
28. The average collection period for a firm measures the number of days afer a typical credit sale is
made until the firm receives the payment. It should be related to the firm’s credit terms. For
example, a firm that allows term 2/10, net 30 should have an average collection period pf
a. Thirty days c. Twenty days
b. Ten days d. Somewhere between 10 days and 30 days
29. Which of the following represents a firm’s average gross receivables balance?
I. Average age in days of receivables x average daily sales
II. Average daily sales x average collection period
III. Annual credit sales ÷ accounts receivable turnover
a. I only c. II only
b. I and II only d. I,II, and III
30. A change in credit policy accelerated the collection of accounts receivables. As result, the
company experienced the following, except
a. An increase in discounts taken by customers
b. An increase in the average collection period
c. A decrease in the receivable balance
d. A decrease in bad debts

ITEMS 31 and 32 ARE BASED ON THE FOLLOWING INFORMATION:

Elaine Corporation is planning to introduce changes in its collection procedures. The new
procedures are expected to make the collection period longer by 10 days, although there will be
no change in bad debts.

For the coming year, Elaine Corporation’s budgeted sales is P32,400,000 or P90,000 per day.
Short-term interest rates are expected to average at 9% per annum.
 31. As a result of the changes in collection procedures, Elaine Corporation’s average accounts
receivable balance will increase (decrease) by
a. P900,000 c. (P 900,000)
b. 90,000 d. 32,400,000
32. To make the changes in collection procedures cost beneficial, the minimum savings in collection
cost for the coming year should be
a. P900,000 c. P8,100
b. P81,000 d. P90,000
33. A Company’s president requested the credit and collection manager to submit proposals on how
to change the company’s credit policy.

The credit and collection manager submitted two proposals. In both proposals, sales, profits, and
collection periods will change although by different figures. Bad debts experience will remain the
same despite the proposed changes.

In making a decision on which proposal should be implemented, the president should consider
the following factors, except

a. The impact of the proposed changes on the current customers of the company
b. The cost of short-term credit
c. The company’s current bad debts experience
d. The change in credit terms to be imposed by banks which provide short-term financing to
the company

ITEMS 34 and 35 ARE BASED ON THE FOLLOWING INFORMATION:

Che-Che Corporation is planning to change its credit policy. The proposed change is expected to:

 Shorten the collection period from 50 days to 30 days

 Increase the ratio of cash sales to total sales from 20% to decrease total sales by 10%
34. If projected sales for the coming year is P40M, what is the peso impact on the average accounts
receivable balance of the proposed change in credit policy? (Use 360 days in a year)
a. P2,344,444 decrease c. P6,800,000 decrease
b. P2,100,000 decrease d. P18,889 decrease
35. What is the impact of the proposed credit policy on the company’s accounts receivable
turnover?
a. Decrease by 7.2 c. Decrease by 20 days
b. Increase by 4.8 d. Increase to 4.8 times
36. Donny Traders sells on credit terms of 2/10, net 30. Average daily credit sales is P50,000. On the
average, 70% of the customers avail of the discount and pay on the 10 th day afer purchase, while
the rest pays on the last day of the credit term. How much is the company’s account receivable
balance?
a. P1,500,000 c.P800,000
b. P450,000 d. P1,050,000
37. Flint Company’s average collection period is 20 days. The average daily sales is P5,000. All of the
company’s average accounts receivable balance?
 a. P0 c. P50,000
b. P100,000 d.P5,000
38. May Corporation’s average daily sales is P6,400,000, 10% of which is cash sales. The variable cost
ratio is 60%. Starting next year, May Corporation will relax its credit standards. The relaxation in
credit standards is expected to cause the following changes:
 Total credit sales will increase by 20%
 The collection period for incremental sales is 60 days. (The payment behaviour of the
existing customers will not change).

The variable cost ratio, even for the incremental sales, will be the same as in the past. The cost of
borrowing is estimated at 25% per year. The company uses 360 days in a year in all its
computations.

What is May Corporation’s expected benefit (loss) from the planned relaxation in credit policy?

a. P1,152,000 c. (P27,520)
b. P460,800 d. P432,000
39. Sisa Corporation has the following data:
Selling price per unit P70
Variable cost per unit P45
Annual credit sales P50,400
Collection period 30days
Rate of return 20%

Sisa Corporation is considering easing its credit standards. If it does, sales will increase by 25%;
collection period will increase to 45 days; bad debts losses are anticipated to be 4% of the incremental
sales; ad collection cost will increase by P31,645.

If the proposed relaxation is credit standards is implemented, the net benefit (loss) for SIsa
Corporation is

a. P215,000 c. (33,075)
b. P315,000 d. (P100,000)
40. Inventory management is the formulation and administration of plans and policies to efficiently
and satisfactorily meet production and merchandising requirements and minimize costs relative
to inventories. One of its objectives it to
a. Maximize the units in inventory
b. Maximize sales
c. Minimize production costs
d. Maintain inventory at a level that best balance the estimates of actual savings, the cost
of carrying additional inventory, and the efficiency of inventory control
41. Inventory costs, in addition to the costs of the purchased items, have been traditionally classified
as follows, except
a. Order cists c. Stockout costs
b. Carrying costs d. Order-filling costs
 42. Inventory management requires the firms to balance the quantity of inventory on hand for
operations with the investment in inventory. Two cost categories in the inventory management
are order costs and carrying costs.
a. The carrying costs include handling costs, interest on capital invested, and obsolescence.
b. The order costs include quantity discounts lost, handling costs, and setup costs for a
production run.
c. The carrying costs include purchasing costs, shipping costs, quantity discounts lost, and
setup costs.
d. The order costs include insurance costs, shipping costs, and obsolescences.
43. The following data are taken from the records of Chikoy Corporation for year 200A:

Sales P25,200,000

Cost of sales P14,400,000

Inventory turnover 9 times per year

For 200B, budgeted sales and cost of sales are the same as in 200A actual data, although the
company will try to increase its inventory turnover to 12 times per year. If short-term interest rates are
expected to average at 8%, what is the company’s expected savings due to the increase in inventory
turnover?

a. P400,000 c. P32,000
b. P700,000 d. P56,000
44. Which inventory costing system will result in a high inventory turnover ratio in period of rising
prices?
a. FIFO c. Perpetual
b. LIFO d. Periodic
45. In inventory management, a decrease in the frequency of ordering will normally
a. Increase total carrying costs
b. Increase the total ordering cost
c. Have no effect on total carrying costs
d. Have no effect on total ordering costs
46. A company would be willing to gave a low inventory turnover ratio if the
a. Inventory order costs is low
b. Carrying cost of inventory is high
c. Cost of stock out is high
d. Lead time is short
47. The EOQ model is a deterministic model that calculates the ideal order quantity (or production
lot) given specified periodic demand, the cost per order or production run, and the periodic
carrying costs per unit. The EOQ model
a. Minimizes the sum of inventory carrying costs and either ordering or production setup
costs
b. Minimizes the sum of ordering costs and production setup costs
c. Minimizes the sum of carrying costs and handling costs
d. Minimize the level of average inventory units
 48. The Economic Order Quantity (EOQ) model can be used to establish inventory policy. In the case
of a manufacturer, the EOQ is called the Economic Lot Size (ELS) or Economic Productions
Quantity (EPQ)
Which of the following statements about the ELS is incorrect?
a. The objective of the ELS models is to minimize the sum of inventory carrying costs and
the costs of production runs or setup costs.
b. In the ELS model, the production rate is deemed to be instantaneous
c. In the ELS model, the demand is assumed to occur at a constant rate over some period
of time
d. The ELS model is used to maximize contribution margin or minimize costs given
resources constraints.
49. Which of the following is not an element in the EOQ formula?
a. Yearly demand c. Safety stock
b. Variable cost per order d. Periodic carrying cost per unit
50. Which of the following statements is false?
a. The cost of inventory itself, as well as ant quantity discounts lost on inventory purchases,
is directly reflected in the EOQ model
b. A decrease in inventory order costs will decrease the EOQ
c. An increase in inventory carrying cost will decrease the EOQ
d. An increase in the variable costs of placing and receiving and order will increase the EOQ
51. The economic order quantity (EOQ) formula does not assume that
a. Demand is known
b. Usage is uniform
c. The cost of placing an order is constant
d. The cost of inventory itself is constant
52. In the EOQ model, the return on capital that is foregone when it is invested in inventory is a (an)
a. Order cost
b. Carrying cost
c. Exclusion in the EOQ computation
d. Irrelevant cost

ITEMS 53 to 55 ARE BASED ON THE FOLLOWING INFORMATION:

Emil Traders, Inc. Sells cellphone cases which it buys from a local manufacturer. Emil Traders sells
24,000 cases evenly throughout the year. The cost of carrying one unit in inventory for one year
is P11.52 and the order cost per order is P38.40
53. What is the economic order quantity?
a. 400 c. 200
b. 283 d. 625
54. If Emil Traders would buy in economic order quantities, the total order costs is
a. P921,600 c.P76,800
b. P2,304 d. P460,800
55. If Emil Traders would buy in economic order quantities, the total inventory carrying costs per
year is
a. P276,480 c. P23,040
b. P 2,304 d. P138,240
 56. The basic EOQ models equals the square root of the (1) product of twice the demand times the
cost per order, (2) divided by the periodic carrying cost per unit. If the annual demand increases
by 44% the EOQ will increase (decrease) by
a. 6.63% c. 9.38%
b. 20% d. 12%

ITEMS 57and 58 ARE BASED IN THE FOLLOWING INFORMATION:

The following information is available for Edgar Corporation’s Material X

Annual usage 12,600 units

Working days per year 360 days

Normal lead time 20 days

The units of Material X are required evenly throughout the year.

57. What is the reorder point?

a. 35 units c. 700 units
b. 20th day d. 630 units
58. Assuming that occasionally, the company experiences delay in the delivery of material X, such
that the lead time reaches a maximum of 30 days, how many units of safety stock should the
company maintain and what is the reorder point?
Safety Stock Reorder point
a. 350 1,050
b. 350 700
c. 0 1,050
d. 1,050 700
59. The following information pertains to Annie Corporation’s Material X:

Annual usage 25,200 units

Working days per year 360 days

Normal lead time in working days 30 days

Safety stock 1,050 units

The maximum lead time working days and the order point for Material X are

Maximum Lead Time Reorder point

a. 30 days 2,100
b. 15 days 1,050
c. 45 days 3,150
d. 45 days 2,100
 60. Using the EOQ model, Ram Corporation determined the economic order quantity for a
merchandise item to be 800 units. To avoid stockouts costs, its remains 200 units in safety stock.
What is Ram Corporation’s average inventory of such merchandise item?
a. 400 units c. 500 units
b. 600 units 1,000 units

ITEMS 61 and 62 ARE BASED ON THE FOLLLOWING INFORMATION:

Using the EOQ mode, Apple Baby Corporation computed the economic order quantity for one of
the products it sells to be 4,000 units. Apple Baby Corporation maintains safety stock of 300 units. The
quarterly demand for product 10,000 units. The order cost is P200 per order. The purchase is 10,000
units. The order cost is P200 per order. The price of the product is P2..40

The company sells at a 100% markup. The annual inventory carrying cost of 25% of the average
inventory level.

61. The annual inventory carrying cost is

a. P2,300 c.P4,300
b. P2000 d. 4,000
62. The total inventory order cost per year is
a. P2,300 c. P2,000
b. P800,000 d. P5,5520

ITEMS 63 to 66 ARE BASED ON THE FOLLOWING INFORMATION:

The following information pertains to Emy Manufacturing Corporation’s Product X:

Annual demand 33,750 units

Annual cost to hold one unit of inventory P15

Setup cost (or the cost to initiate a production run) P500

Beginning inventory of product X 0

At present, the company produces 2,250 units of Product X per production run, for a total of 15
production runs per year. The company is considering to use the EOQ model to determine the economic
lot size and the number of production runs that will minimize the total inventory carrying cost and setup
cost for Product X.

63. At the present, the company’s total annual inventory costs is

a. P7,500 c. P24,375
b. P16,875 d. P22,500
64. If the EOQ model is used, the economic lot size is
a. 2,250 units c. 2,2250,000 units
b. 1,500 units d. 1,500
65. If the EOQ model is used, the number of production runs should be
a. 15 runs c. 67.5 runs
 b. 1,500 units d, 22.5 runs
66. If the EOQ model is used, the total annual inventory costs, compared with that under the
present system, will increase (decrease) by
a. (P1,875) c. (P5,625)
b. P3,750 d. P11,250
67. Which of the following is not a source of short-term credit?
a. Purchases on account c. Deferred income
b. Accruals d. Common stock
68. Which of the following is incorrect?
a. When a firm purchases goods or services on credit form a supplier, it automatically
obtains short-term financing.
b. Trade credit usually bears no interest, so it is costless
c. Accruals or accrued expenses is a form of spontaneous financing which represents
liabilities for services that have been provided to the company but have not been paid
for
d. Pledging of receivables is an example of secured short-term credit
69. Which of the following forms of short-term borrowing is a secured credit?
a. Commercial paper c. Chattel mortgage
b. Line of credit d. Banker’s acceptances
70. A company obtained short-term loan from a bank. Information about such loan is as follows:
Principal of loan P5,000,000
Stated interest rate 10%
Terms 1 year

If the loan is discounted, the effective interest rate is

a. 10% c. 9.09%
b. 11.11% d.8.89%
71. A company received a P500,000 line of credit from its bank. Some information about the credit
line is as follows:
Stated interest rate 10%
Compensating balance equipment 20%
Assuming that the company drew down the entire amount at the beginning of the year, and that
the loan is discounted, what is the effective interest rate in the loan?
a. 10% c. 30%
b. 20% d. 14.29%
72. A company received a line of credit from its bank. The stated interest rate is 12%, deducted in
advance. The line of credit agreement requires that an amount equal to 20% of the loan be
deposited into a compensating balance account. On March 1, the company drew down the
entire usable amount of the loan and received the proceeds P340,000. How much is the
principal amount of the loan?
a. P340,000 c. P231,200
b. P500,000 d. P448,800
73. A company purchases merchandise form its supplier on credit terms of 3/10, net 30. What is the
equivalent annual interest rate (Use a 360-day year) if the company foregoes the discount and
pays on the 30th day?
 a. 55.67% c. 60%
b. 3% d. 3.09%
74. What is the current price of a P100,000 treasury bill due to 180 days on an 8% discount basis?
a. P100,000 c. P104,000
b. P96,000 d. 92,000
75. Jun Traders, a merchandising firm, purchases merchandise form its suppliers on credit terms
2/10, net 30 Jun Traders need cash, so it is considering two alternatives:
Alternate 1 – Obtain a short-term loan from the bank at an effective interest rate of 12%
Alternate 2 - forego the discount on its credit purchases and pay on the 30 th day of the
term,
Jun Traders should choose (Use 360-day year)
a. Alternative 2 because this is a costless credit financing.[
b. Alternative 2 because its cost is cheaper by 10%
c. Alternative 1 because its cost is cheaper by 24.73%
d. Alternative 1 because its cost is cheaper by 1%
76. A company’s policy is to maintain a current ratio of at least 2:1. At present, its current ratio is 2.5
is to 1. If current liabilities at present amounts to P250,000, what is the maximum amount of
short-term commercial loan that can be obtained by the firm to finance inventory expansion
without violating its current ratio policy?
a. P125,000 c. P62,500
b. P0 d.P50,000
77. A company obtained a short-term bank loan of P500,000 at a annual interest rate of 10%. The
bank requires that a compensating balance of 20% be maintained in the borrowers account. The
compensating balance will earn interest of 2%per annum, payable in the maturity of the loan.
Even before the approval of the loan, the company has been maintaining a balance of P50,000.
In the account. Thus, in compliance with bank’s condition, the company will just deposit from
the loan principal an amount of P50,000. What is the effective interest rates of the loan?
a. 10% c. 11.11%
b. 10.89% d. 12.5%

ITEMS 78 to 80 ARE BASED ON THE FOLLOWING INFORMATION:

The expected boom in the business in the coming period led by the Baby Apple Company to decide to
expand its operations. The expansion requires an increase of P500,000 in working capital, which the
company is considering to finance through any of the following alternatives:

1. Pledge the accounts receivable

The company’s average accounts receivables is P625,000 per month. A financier will lend 80% of
the face value of the receivables at 10% interest per annum, payable on the maturity of the loan.
2. Issue P515,000 of 3-month commercial paper to net P500,000. New paper will be issued every 3
months.
3. Borrow from a commercial bank an amount that will net P500,000 afer deducting a
compensating balance of 15% and interest of 5%
Use a 360-day year in all your calculations.
78. The cost of Alternative 1 is
a. 10% c. 8%
 b. 12.5% d. 120%
79. The annual cost of Alternative 2 is
a. 11.65% c. 12%
b. 1% d. 0.97%
80. The annual cost Alternative 3 is
a. 5% c. 25%
b. 20% d. 6.25%

ITEMS 81to 84 ARE BASED ON THE FOLLLOWING INFORMATION:

Lei Company enters into an agreement with a firm that will buy Lei Company’s accounts
receivables and assume the risk of collection. Details about the agreement are as follows:

Average amount of receivables to

be factored each month P500,000

Average collection period 60 days

Amount to be advanced by the factor 80% of the face amount of the receivables

Interest rate, deductible in advance 10% p.a.

Factor’s fee, deductible in advance 2%

Annual savings of Lei Company in

collection expenses P60,000

81. How much is the monthly net proceeds from factoring the receivables?
a. P500,000 c. P383,333
b. P400,000 d. P350,000
82. What is the annual net cost of factoring?
a. P120,000 c.P160,000
b. P100,000 d.(P10,000)
83. What is the effective annual cost rate of financing?
a. 26.09% c. 20%
b. 25% d. 29.41%
84. If the interest change and factor’s fee is not deducted in advance, the effective annual cost rate
is
a. 26.09% c. 20%
b. 25% d. 29.41%
85. Loi ofen factors its account receivable. The factor requires a 10% reserve and charges 2%
commission on the amount of receivables factored. The remaining amount (afer deducting the
reserve and commission) is further reduced by an annual interest charge of 12%.
At the beginning of the month, the company factored P500,000 of accounts receivables due in
60 days and received net proceeds of (Use 360-day year)
a. P440,000 c. P431,200
 b. P378,200 d.P380,000

ITEMS 86 to 89 ARE BASED ON THE FOLLOWING INFORMATION:

Jem Traders, inc. Needs P100,000 to pay a suppliers invoice for merchandise purchased with the
term of 2/10, net 30. Jem Traders wants to pay on the 10 th day of the credit term so it can avail of the 2%
discount.

The funds needed can be raised by obtaining a short-term loan from a bank which agrees to
grants a 30-day loan at 12% discounted interest per annum. The bank requires that a compensating
balance of 10% be maintained in the borrower’s non-interest earning deposit account.

86. The amount needed by Jem Traders to pay the invoice within the discount period is
a. P98,000 c. P9,000
b. P100,000 d. P102,000
87. The principal amount of the loan that must be obtained from the bank to raise the needed fund
is
a. P110,112 c. P112,360
b. P108,780 d. P125,640
88. What is the effective interest rate of the loan?
a. 12% c. 10%
b. 22% d. 13.48%
89. If Jem Traders fails to pay the discount and pays the account on the 30 th day of the term, what is
the annual cost of this no-free trade credit?
a. 2% c. 24%
b. 36.73% d. 0
90. Which of the following is not a source of long-term financing?
a. Common stocks c. Preferred stocks
b. Bonds d, floating lien
91. One of the sources of long-term financing is the issuance if common stock. The advantages (to
the issuer) of issuing common stocks are as follows, expect
a. The sale of common stocks increases credit worthiness of the firm by proving more
equity.
b. Common stock cash dividends afer not tax deductible as expense
c. Common stock is frequently more attractive to investors that debt because it grows in
value with the success of the firm.
d. Common stock dividends are not fixed – they are paid from profits when available.
92. It is a hybrid of debt and equity. It has a fixed charge and increases leverage, bu payment of
dividends is not legal obligation.
a. Preferred stock c. Bonds
b. Common stock d. Commercial paper
93. Bonds, a source of long-term financing, are long-term debt instruments. They are similar to
terms loans, except they are usually offered to the public and sold to many investors. Among the
advantages (to the issuer) of issuing bonds are as follows. Except
a. Cost of debt is limited- bondholders usually do not participate in the superior earnings of
the firm.
 b. Interest paid on debt (bonds) is tax-deductible.
c. Debt adds risk to a firm.
d. Basic control of the firm is not shared with the debt holder
94. Leasing has becoming a major means of financing because it offers a variety of tax and other
benefits. The three principal forms of lease are sale-leaseback, operating lease, and capital lease.
The operating lease
a. Involves the sale of property by the owner and a lease of the property back to the seller.
b. Is non-cancellable and fully amortizes the cost of the leased asset over the term of the
basic lease contract
c. Transfers substantially all of the benefits and risk of ownership of property to the lease
d. Is a form of off-balance-sheet financing

95. Jammy Corporation presently has 200,000 shares, per P10 par value common stocks issued and
outstanding. The common stockholders of Jammy Corporation have pre-emptive rights.
If Jammy Corporation issues 100,000 additional shares of common stock at P15 per share, a
current holder of 30,000 shares of Jammy Corporation’s common stock must be given the option
to buy
a. 15,000 additional shares c. 45,000 additional shares
b. 30,000 additional shares d. 60,000 additional shares
96. Which of the following brings in additional capital to the firm?
a. Issuance of stock dividend
b. Two-for-one stock split
c. Exercise of warrants
d. Conversion of convertible bonds to common stocks
97. Warrants are long-term options that give holders the right to buy common stocks in the future at
a specified price. Issuers of debt sometimes attach stock purchase warrants to debt instrument
as an inducement to investors. A major use of warrants in financing is to
a. Increase the return on debt
b. Lower the cost of debt
c. Avoid dilution in earnings per share
d. Maintain managerial control
98. to acquire additional capital while attempting to maximize earnings per share, a company should
normally
a. select debt over equity initially
b. select equity over debt initially
c. issue both bonds and stocks in equal proportion
d. discontinue paying dividends and use current cash flows to raise capital fund
99. if a firm’s degree of operating leverage is higher than the industry average, such firm
a. is more profitable
b. is less risky
c. has profits that are more sensitive to changes in sales volume
d. has higher sales

ITEMS 100 to 103 ARE BASED ON THE FOLLOWING INFORMATION:

 Following is the income statement of Annabelle Corporation for the year ended December 31,
200A

ANNABELLE CORPORATION

Income statement

For the year ended December 31, 200A

Sales (500,000 units at P100 each) P50,000,000

Less variable cost ( 500,000 at P80 each) 40,000,000

Contribution margin P10,000,000

Less fixed costs 6,000,000

Operating income (or EBIT) 4,000,000

Less interest expense 1,000,000

Income before tax P3,000,000

Less income tax (30%) 900,000

Income afer tax P2,100,000

During the year, the company distributed cash dividends to preferred stockholders in the amount of
P700,000

100. What is Annabelle Corporation’s degree of operating leverage (DOL)?

a. 2.50 c. 4.90
b. 3.33 d. 7.35
101. what is Annabelle Corporation’s degree of financial leverage (DFL)?
a. 1.72 c. 2.00
b. 2.50 d. 1.33
102. what is Annabelle corporation’s degree of total leverage (DTL)?
a. 4.00 c. 1.25
b. 5.00 d.0.80
103. If Annabelle corporation did not have preferred stocks, the degree of total leverage would
a. Increase in proportion to an increase in financial leverage
b. Decrease in proportion to a decrease in financial leverage
c. Be unaffected
d. Decrease in portion to a decrease in operating leverage
104. Which of the following statements about cost of capital is false?
a. Cost of capital is based on what the company pays for its capital, not the return earned
on the capital employed
b. The overall cost of capital is the minimum rate a firm must earn on all investment to
cover capital costs.
 c. The overall cost of capital is the cost of the firm’s equity capital at which the market
value of the firm will remain unchanged
d. The overall cost of capital is the weighted average cost of the various debt and equity
components in a firm’s capital structure
105. Ideally , a firm’s optimal capital structure is the one that balances the costs of debt and equity
capital and their associated risk levels. The optimal capital structure minimizes the firm’s
a. Weighted average cost of capital
b. Cost of debt
c. Cost of equity capital
d. Earnings per share
106. Which of the following statements is incorrect?
a. Financial structure is the corporation of the financing sources of the assets of the assets
of a firm and it consists of current and long-term liabilities, retained earnings, and stock.
b. Capital structures consists of the firms long-term financing, i.e, long-term debt and
stockholder’s equity
c. The optimum capital structure is a combination of long-term debt equity that minimizes
the cost of capital and value if the firm
d. Debt is cheaper than equity, but excessive use of debt increases the firm’s risk and drives
up the weighted average cost of capital
107. Which of the following statements is incorrect?
a. An increase in the corporate income tax rate might encourage a form to increase the
amount of debt in its capital structure
b. An increase in economic uncertainty encourages equity financing
c. In general, debt financing is more expensive than equity financing
d. When calculating the costs of capital, the cost assign to retained earnings should be
lower than the cost of the external common equity
108. At present, Jerry Corporation’s capital structure is composed of 200,000 shares of common
stocks outstanding with the market price of P20 per share. It also has P4 million in 8% bonds and
P 2 million in 10%, P10 par value preferred stocks, both currently selling at par.
The company is considering a P 3 million expansion program which can be financed with:
1. all common stocks at P20 per share
2. all bonds at 10% interest rates
3. all preferred stocks
If the expansion program is undertaken, the company estimates that it can earn EBIT (earning
before interest and taxes) of P2,000,000 The income tax rate is 30%
It the expansion program is implemented, the expected earnings per share under each
alternative source of financing are:
All Common Stocks All Bonds All Preferred Stocks
a. P4.71 P3.69 P3.21
b. 3.26 4.69 5.71
c. 2.69 4.78 5.71
d. 2.78 3.83 3.38
109. Jervi Corporation is planning to issue P20M bonds at an effective interest rate of 10%. The
company pays income tax at a rate of 30%. What is the cost debt capital?
a. 10% c. 3%
b. 7% d. 13%
 110. Sam Corporation is planning to issue 100,000 shares of 10%, P50 par value preferred stocks
for P80 per share. The company pays income tax at the rate of 30%. What is the cost capital
( preferred stocks)?
a. 10% c. 6.25%
b. P5 d.4.25%
111. Tanya Corporation issued preferred stocks for P120 per share. The issue price is P20 more
than the stock’s par value. The company incurred underwriting fees of P10 per share. The stocks
will earn annual dividends of P12 per share. If the tax rates is 30%, the cost of capital (preferred
stocks) is
a. 10% c. 7.42%
b. 12% d. 10.91%
112. Vicky Corporation has preferred stocks that pay dividends of P6.72 per share. If the cost of
funds (capital) coming from preferred stocks is 12% and the income tax rate is 30%, what is the
price of the preferred stocks?
a. P56.00 c. P1.79
b. P0.81 d.P38.08

ITEMS 113 to 116 ARE BASED ON THE FOLLOWING INFORMATION:

Hector Corporation’s capital structure is as follows:

Bonds payable, 10 years, 10% P1,000,000

10% preferred stocks, P200 par value,

10,000 shares issued and outstanding 2,000,000

Common stocks, P50 per share,

30,000 shares issued and outstanding 1,500,000

Retained earnings 5,000,000

Total P5,000,000

The company’s earnings per common share (EPS) is P12. The common share’s current market
price is P60, while that preferred shares is P250. The income tax rate is 30%.

113. For purposes of computing the company’s overall cost of capital, the cost of common stocks
and retained earnings is
a. 24% c. 20%
b. 16.32% d. 13.6%
114. The cost of debt is
a. 7% c. 14.71%
b. 10% d. 7.58%
115. The cost of preferred stocks is
 a. 10% c. 8%
b. 6.8% d. 5.44%
116. What is the weighted average cost of capital?
a. 34.80% c. 8.54%
b. 23.66% d. 12.60%
117. Harry Corporation’s common stocks currently sell for P40 per share. The estimated dividend
payment at the end of this year is P4 per share. The expected growth rate is 12%. Using the
dividend growth model, the cost of capital is
a. 22% c. 12%
b. 10% d. 23%

ITEMS 118 to 119 ARE BASED ON THE FOLLOWING INFORMATION:

Harold Corporation’s common stocks currently sell for P50 per share. Flotation cost is 5%. In
the past, the company paid dividends of P4.50 per share. The expected dividend growth rate is 10%

118. Using the dividend growth model, the cost of capital is

a. A 19.47% c. 20.42%
b. 19.90% d.10.42%
119. What is the cost of retained earnings?
a. 19.47% c. 20.42%
b. 19.90% d. 10.42%
120. Pinky Corporation expects to pay dividends of P5 per share at the end of this year. The
expected growth rate is 10%
Using the dividend growth model, what is the stock’s market price if the cost of
capital(common stocks) is 25%?
a. 14.29 c. P20
b. P50 d.P33.33

ITEMS 121 and 122 ARE BASED ON THE FOLLOWING INFORMATION:

The return on market portfolio is 12% and the risk-free rate is 5%. The beta coefficient is 1.4

121. Using the capital asset pricing model, what is the cost of capital (or required rate of return)?
a. A. 14.8% c. 9.8%
b. 12% d. 14.0%
122. If the beta coefficient increases to 1.6, the required rate of return will increase (decrease) by
a. 0.2% c.1.4%
b. (0.2%) d. (1.4%)
123. Chelsea Corporation is planning to invest in a project. Two investment opportunities are being
considered.
Alternative Cost of investment Expected Return on investment
1 P100M 11%
2 P100M 15%
Chelsea Corporation can invest in only one of the alternatives. The investment project will be
financed by issuing common stocks. The company uses the capital asset pricing model (CAPM) in
 computing the cost of capital (common stock). At present, the market rate is 12% and the risk-
free rate is 8%. The beta coefficient is 1.3
Which investment alternative should the company choose?
a. Alternative 1 only c. Alternative 1and 2
b. Alternative 2 only d. None

ITEMS 124 to 126 ARE BASED ON THE FOLLOWING INFORMATION:

Following are some financial data pertaining to Kyle Corporation:

Capital structure (in millions):

Long term debt ( 12% interest rate) P140

Stockholders equity:

Common stocks, P10 par value P40

Additional paid-in capital 400

Retained earnings 420 860

Total P1,000

Kyle Corporation’s common stock is currently selling at par. The current market return is 14% and the
risk-rate is 10%. The beta value for Kyle 1.20. it pays income tax at the value of 30% of taxable income.

124. The afer-tax cost debt is

a. 12% c. 8.40%
b. 3.84% d. 17.64%
125. Using the capital asset pricing model, the cost of common equity is
a. 14.8% c. 18.8%
b. 12.08% d. 4.8%
126. The weighted average cost of capital is
a. 22.96% c. 14,80%
b. 11.48% d. 13.91%
127. Charmaine Corporation has P50M bonds in its capital structure. The corporation issued
bonds at par, P1,000 per bond, with 10% interest rate. He mature will mature in 10 years. At
present, such bonds can be sold at P1,300 per bond and can be issued at 140 basis points over
Philippine treasury bonds. Charmaine Corporation’s income tax rate is 30%. The interest rate for
Philippine treasury bonds is 8%

What is Charmaines Corporation’s current cost of debt?

a. 7.84% c. 11.20%
b. 8% d. 9.52%
ITEMS 128 to 131 ARE BASED ON THE FOLLOWING INFORMATION:

Apple Corporation is engaged in the call center business. A boom in this type of business has
caused Apple Corporation’s management to consider expanding its operations by opening more call
centers in key cities all over the country. The planned expansion project requires an investment of P240
M, a 100% increase in the corporation’s present capital structure. Management in the corporation’s
present structure. Management is considering three financing alternative:

Alternative 1 – Debt and Equity Financing

 Float bonds with 10% interest rate, expected proceeds of P72M, net flotation costs
 Issue 8% preferred stocks, expected proceeds of P48M, net of P2M, flotation costs
 Issue common stocks, expected proceeds of P120M, net of 6% flotation costs.

Alternative 2 – Debt financing

 Float nods with 12% interest rate. Expected proceeds, P240M, net flotation costs

Alternative 3 – Equity Financing

 Issue common stocks, expected proceeds, P240, net of 5% flotation costs.

The company’s capital structure is composed of 30% bonds, 20% preferred stocks, and
50% common stocks.

The common stocks currently sell for P50 per share. For the past 2 years, common stock
dividends amounted to P5 per share. The expected dividend growth rate is 4%. Apple
Corporation pays income tax at the rate of 30%

128. What is the weighted average cost of capital for Apple Corporation first financing alternative.
a. 11.30% c.15.06%
b. 30.19% d. 6.80%
129. What is the weighted average cost of capital for Apple Corporation’s second financing
alternative, assuming that the costs of preferred stocks and common stocks are 8.5% and 15%
respectively?
a. 31.66% c. 10.06%
b. 13.06% d. 11.65%
130. What is the weighted average cost of capital for Apple Corporation’s alternative 3, assuming
that the cost of bonds and preferred stocks are 6.8% and 8.33%, respectively?
a. 30.08% c.11.21%
b. 13.06% d. 11.19%
131. What is the afer-tax weighted marginal cost of capital for Apple Corporation’s financing
alternative 2, considering solely of bonds?
a. 8.40% c. 3.84%
b. 12.00% d. 17.65%

ITEMS 132 to 135 ARE BASED ON THE FOLLOWING INFORMATION:

 Ayie Corporation is considering a project for the coming year that will require an investment
cost of P100M, the company plans to finance the project by a combination of debt and equity, as follows:

 Issue P20M of 10 year bonds at a price of 102, with and interest rate of 10%, and
flotation cost of 3% of par
 Use P80M of funds generated from earnings retained in the business

The expected market rate of return is 14%. The current rate of Treasury Bills is 8%. The beta
coefficient for Ayie Corporation is 1.2 The corporation income tax rate is 30%

132. What is the effective rate of interest of the bonds?

a. 10% c.10.20%
b. 9.89% d.10.10%
133. What is the afer tax effective cost of bonds?
a. 6.80% c. 6.73%
b. 7.07% d. 6.94%

134. Using the capital asset(CAPM) what is the cost of equity capital of Ayie Corporation?
a. 9.6% c. 15.20%
b. 10.34% d. 7.2%
135. Assume that the afer tax cost of debt is 7% and the cost of equity capital is 15%, what is the
weighted average cost of capital for Ayie Corporations project.
a. 13.40% c. 13.53%
b. 22% 14.96%

ITEMS 136 to 138 ARE BASED ON THE FOLLOWING INFORMATION:

Oneng Corporation’s present capital structure consist of 30% debt, 10% preferred equity, 60%
common equity. This capital structure is considered optional and Oneng Corporation’s wishes to
maintain it. For the coming year, Oneng corporation is planning to invest P80M, that will be financed
according to the desired capital structure. Currently Oneng Corporation has P20M cash available for the
project

136. The percentage of the P80M that come from the long term debt is
a. 30% c.P24M
b. 22.5% d. P18M
137. The percentage of P80M that come from the new issuance From the common stock is
a. 60% c.30.6%
b. 40.8% d. 45%
138. If the company will maintain the optimal capital structure to finance the project and Preferred
Stocks are issued the proceeds should be
a. P6M c. 10%
b. P8M d. 7.5%
139. Butchoy Corporation’s present capital structure, at book value, is shown below:
Bonds P 9,800,000
Preferred Stocks (140,000 shares) 1,400,000
Common stocks ( 280,000 shares) 9,800,000
 Total P21,000,000
Additional data pertaining to the capital structure were gathered and they are as follows:
Bonds Preferred Stocks Common Stocks
Current selling price 80% of par P10 per share P40per share
Interest rate 9%
Expected dividend payments 6% 1.20/share
Dividend growth rate 8%/year
Income rate 30%
What is Butchoy Corporation’s weighted average cost of capital if its new financing will be in
proportion to the market value of its present financing?
a. 8.39% c. 11.00%
b. 23.12% d. 8.86%
140. Unye Corporation expects to pay dividends of P4.80 per share at the end of the current year.
The dividend growth rate is 10% and the cost of common equity capital is 14%
If the dividend growth model is used to appraise Unye Corporation’s shares of stocks, the price
of the stock to the public is
a. P120.00 per share c. 14.00%
b. P5.28 per share d. 15.40%
141. Danise Corporation believes that it can sell long-term bonds with an 8% coupon rate,
although the effective rate is 10%. If such bonds are part of Danise Corporation’s financing plans
for next year, what is the afer tax( 30% tax rate) cost of bonds for purposes of calculating the
corporation’s cost of capital
a. 5.44% c. 8%
b. 7% d. 10%

ITEMS 142 TO 158 ARE BASED ON THE FOLLOWING INFORMATION.

At the end of 200A, Tanya Corporation is planning to Increase its productive capacity. This plan
will require acquisition of additional facilities that calls for a substantial amount of capital expenditures.

Tanya is considering four investment alternatives:

Amount of

Investment Required Rate of Return

Alternative A P300M 13.80%

Alternative B 300M 15.20%

Alternative C 300M 15.50%

Alternative D 300M 16.00%

Preferred stock may be issued at par.

Common stock has a par value of P10 and is selling for P42 per share, net of P3 per share floatation cost.
The company has had 8% dividend yield and growth rate of 9% per year.

Retained earnings as of the end of 200A amount to P58.8M

The 10% yield on bonds is applicable to a maximum of P70M bonds. Additional debt will require a 4%
premium and be sold to yield 14%

The corporate tax rate is 40%

142. The cost of retained earnings and common stocks are

Retained Earnings Common Stocks

a. 8% 9%
b. 5.44% 25%
c. 17.72% 18.34%
d. 18.34% 17.72%

143. What is the cost of preferred stocks?

a. 10.88% c. 16%

b. 5.12 % d. P16

144. The weighted-average cost of capital as of the end of 200A is

a. 14.78% c. 17.72%

b. 18.34% d. 15.15%

145. What is the retained earnings breakpoint?

a. P58.8% c. 17.72%

b. 18.34% d. 15.15%

146. What is the debit breakpoint?

a. P70M c. 280M

b. P42M d. 28M

148. If the additional facilities require an investment of P300M, which investment alternative should be
chosen?
a. Alternative A b. Alternative C

b. Alternative C d. Alternative D
ITEMS 149 and 150 ARE BASED ON THE FOLLOWING INFORMATION:

Neo Corporation is a closely held corporation owned by Rivera Family. It currently earns P6M
profit afer tax and has 300,000 shares outstanding. Next Year, Neo Corporation will go public for the first
time. Its initial public offering of 100.000 shares will be price at P60 per share, with a 55 spread on the
offering price. In addition, Neo Corporation will icure P200,000 in-out-pocket costs.

149. If all the shares will be issued the net proceeds will be

a. P6.0M. c. P5.7M.

b. P5.5M d. P5.8M.

150. What rate of return must be earned of the net proceeds from the IPO so that there will be no
dilution in earnings per share during the year of going public?

a. 35.09% c. 43. 48%

b. 33.33% d. 36.36%

151. Bea recreation Corporation is a publicly listed corporation. In 200C, it decided to go private by
buying all its 5M outstanding shares at 5.80 per share.

In 200D, it restricted the company by selling its low margin facilities (bowling and billiard centers) for
P20M and concentrated in operating its golf course, tennis, and badminton centers. Within one year, the
restructuring improved the company’s earnings per shares to P1.50. This made company’s management
consider expanding its golf and tennis operations. Fund for the planned expansion can be rased by going
public again and issue the 5M shared that it previously reacquired. The company’s investment bankers
said that the shares can be offered to the public at a P/E

Ratio of 4 times the present earnings per share of P1.50.

At what price will the 5M shares can be offered to the public?

a. P6.00 c. P1.50
b. P4.00 d. P2.67

ITEMS 152 TO 155 ARE BASED ON THE FOLLOWING INFORMATION:

Ka Jess corporation is planning to go to public for the first time. To determine some relevant
information pertaining to the planned IPO, Ka jess corporation submitted the following operating and
financial data for the most recent year to its investment bankers:

KA JESS CORPORATION

Income Statement

For the Yewar Ended December 32,200D

Sales ` P35,884,800

Cost of goods sold 25,964,800

Gross income P9,920,000

Less operating expenses 4,255,040

Income from operations P 5,664,960

Less interest expense 592,960

Income before tax P 5,072,000

Less provision for income tax 2,028,800

Net income P 3,043,200

The investment backers estimate that the new public offering will be at 5 times the earnings per share.
The company will issue 120,000 new common shares to the public.

152. What will be the initial price of the new shares?

a. P31.50 c. P0.99

b. P1.01 d. P25.35

153. If an underwriter spread of 6% and out-of-pocket costs of P159,480 will be incurred, how much will
the net proceeds from the new issuance be?

a. P3,042,000 c. P2,859,480

b. P2,700,000 d. P2,882,520

154. What return must the corporation earn on the net proceeds from the issuance of new shares to
equal the earnighs per share before the offering?

a. 25% c. 24.35%

b. 31.10% d. 28.18%

155. Assume that the price-earnings ratio afer the distribution of new shres is 5, and that of the 120,000
share distribution, 30,000 shares belong to the curren stockholders and 90,000 are nedw corporate
shares and these will be added to the 480,000 shares currently outstanding. At how much should the
stocks be priced to the public?

a. P25.35 c. P26.70

b. P32.70 d. P126.80
Key answers. 34) A 70) B
35) B 71) D
1) D 36) C 72) B
37) B 73) A
2) D 38) D 74) B
3) B 39) A 75) C
4) A 40) D 76) A
5) C 41) D 77) B
6) A 42) A 78) A
7) C 43) C 79) C
8) D 44) B 80) D
9) C 45) A 81) C
10) B 46) C 82) B
11) C 47) A 83) A
12) A 48) D 84) B
13) B 49) C 85) C
14) C 50) A 86) A
15) A 51) D 87) A
16) D 52) B 88) D
17) D 53) A 89) B
18) A 54) B 90) D
19) C 55) B 91) B
20) D 56) B 92) A
21) C 57) C 93) C
22) A 58) A 94) D
23) B 59) C 95) A
24) D 60) B 96) C
25) A 61) A 97) B
26) C 62) C 98) A
27) C 63) C 99) C
28) D 64) B 100) A
29) D 65) D 101) C
30) B 66) A 102) B
31) A 67) D 103) B
32) B 68) B 104) C
33) C 69) C 105) A
106) C 123) B 140) A
107) C 124) C 141) B
108) D 125) A 142) C
109) B 126) D 143) C
110) C 127) A 144) A
111) D 128) A 145) B
112) A 129) C 146) D
113) C 130) B 147) C
114) A 131) A 148) D
115) C 132) D 149) B
116) D 133) B 150) D
117) A 134) C 151) A
118) C 135) A 152) D
119) B 136) B 153) B
120) D 137) D 154) D
121) A 138) A 155) C
122) C 139) B