ACCO 20123 - Financial Management - Final Departmental Examination

7/29/22, 3:54 PM ACCO 20123 - Financial Management-
Final Departmental Examination
ACCO 20123 - Financial Management- Final

Departmental Examination
General Instructions: For the Multiple Choice, select the best answer. For the supply the answer, please follow the
instructions after each problem.
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* Required
1. Name (Last name, First name, Middle initial) *
MANASAN, ABIGAIL P.
2. Student number *
2020-02352-MN-0
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7/29/22, 3:54 PM ACCO 20123 - Financial Management- Final Departmental Examination
3. Campus/Branch *
PUP MAIN
4. Section *
BSA 2-12
5. The company requires P1,000,000 for its proposed plan. The following financial alternatives are
available:
● Plan I: 100% Equity Capital (Face Value P100)
● Plan II: 50% Equity Capital (Face Value P100) and 50% Debenture (interest rate 6%)
● Plan III: 50% Equity Capital (Face Value P100) and 50% Preference Shares (rate of dividend
6%)
● Plan IV: 25% Equity Capital (Face Value $100), 25% Debentures (interest rate 6%), and 50%
Preference Shares (rate of dividend 6%)
The rate of tax applicable to the company is 50%. The company expects an EBIT of P4,000,000.
Calculate the indifference point of EBIT between Plan I and Plan III.
Plan I: There is no fixed financial charge (debenture interest or preference dividend). Therefore,
there is no financial break-even.
Plan II: Fixed financial charges amount to P30,000 (interest on debentures). Therefore, the
financial break-even is P30,000.
Plan III: In the case of Plan III, the fixed financial charge is P30,000 (preference dividend).
Preference dividend is payable out of profit after tax. The tax rate applicable is 50%. Therefore,
the financial break-even is P60,000 (Dividend 30,000 + Tax 30,000).
Plan IV: In the case of Plan IV, the fixed financial charges are P75,000, i.e., interest on debentures
P15,000 + preference dividend (P30,000 + Tax on profit P30,000) P60,000. * (2 Points)
P60,000
P100,000
P 90,000
P 120,000
6. Statement I: The time value of money is ignored both in the rate of return and the payback
methods
Statement II: Capital budgeting involves various methods of obtaining cash for business
operations. * (1 Point)
True, True
False, False
True, False
False, True
7. Statement I: The future value of a mixed stream cash flow is the sum of the expected current
value of future periodic unequal cash flow over a certain period of time at a given discount rate.
Statement II: The cash flow of the annuity due occurs at the beginning of the period rather than
at the end, its future value is lower than the future value of an ordinary annuity.
Statement III: The annual rate of interest actually paid or earned is the annual percentage rate. *
(1 Point)
All statements are correct
All statements are incorrect
Two statements are correct
Two statements are incorrect
8. What is not an example of systematic risk? * (1 Point)
Currency Risk
Equity Risk
Liquidity Risk
Event Risk
9. Statement I. There is only one source of long-term funds.
Statement II. All costs of capital should be recorded after-tax * (1 Point)
Only Statement I is True
Only Statement II is True
Both Statements I and II are True
Both Statements I and II are False
10. Mixed stream cash flows and annuities differ because * (1 Point)
mixed streams are inflows and annuities are outflows
mixed streams follow no particular pattern of cash flows; however, annuities are streams of equal periodic
cash flows.
the present value of a mixed stream is easier to calculate than the present value of an annuity
the future value of a mixed stream is the sum of the future values of the individual cash flows, but the future
value of an annuity is simply the future value of the annuity's annual payment
11. A firm is evaluating a proposal which has an initial investment of P50,000 and has cash flows of
P15,000 per year for five years. The payback period of the project is * (2 Points)
1.5 years.
2 years.
3.3 years.
4 years.
12. Payback is considered an unsophisticated capital budgeting technique, and as such * (1 Point)
gives no consideration to the timing of cash flows and therefore the time value of money.
gives no consideration to risk exposure.
does consider the timing of cash flows and therefore gives explicit consideration to the time value of money.
gives some implicit consideration to the timing of cash flows and therefore the time value of money
13. It reduces risk by spreading money among a wide array of investments. * (1 Point)
Correlation
Diversification
Market portfolio
Returns
14. What will your 12,000php be worth at the end of one year when the nominal annual interest rate
is 12% when interest is compounded daily? * (2 Points)
12,000
13,530
13,440
12,440
15. Statement I: The key assumption with the use of EBIT is that WACC is notconstant regardless of
the degree leverage.
Statement II: Regardless of changes in leverage, the cost of capital cannot be altered through
leverage. * (1 Point)
Both statements are true.
Only statement I is true
Only statement II is true
Both statements are false
16. Statement I : In traditional approach, the cost of debt remains constant only in the first stage.
Statement II : The optimum capital structure is where the overall cost of capital is at maximum
and the value of the firm is at minimum. * (1 Point)
Only Statement I is true
Only Statement II is true
Both statements are true
17. The company budgeted sales in units for the last quarter of the year as follows: October - 12,000;
November - 14,000; December - 16,000. The finished goods inventory on hand October 1 is
4,000 units. It desires an ending inventory on December 31 of 3,000 units. How many units
should it produce for the last quarter? * (2 Points)
41,000
43,000
45,000
49,000
18. In a gaming room of a high-traffic video arcade wishes to determine the return on its video
machine. The machine was purchased 1 year ago for P20,000 and currently has a market value of
P21,500. During the year, it generated P800 of after-tax cash receipts. Calculate the annual rate of
return, k, for the video machine. (Round off the final answer to one decimal place. Example of
writing your answer 2.5%) * (2 Points)
3.5%
19. After four challenging yet fruitful years, you just graduated from college. Your parents gave you
P150,000 cash as a graduation gift and advised you to put it in a savings account to earn a 10%
rate of return for 4 years. However, being a pet lover, you went to the pet shop and bought a pair
of pet dogs worth P150,000. What is the best estimate of the opportunity cost for this decision?
(Use 4 decimals for future value factors). * (2 Points)
P0
P69,615
P60,000
P198,075
20. It represents the firm’s cost of financing and is the minimum rate of return that a project must
earn to increase firm value. * (1 Point)
Cost of long-term debt

Cost of capital
Cost of retained earnings
Weighted Average Cost of Capital
21. Consider the following project which costs P2,000 with a salvage value of zero in 4 years. The
project will produce a new widget which will be sold for P135 and has variable costs of P95 per
unit. The company has fixed costs of P3,000 and a required return on projects of 14.5%. If the
company sells 200 units, what is the firm's degree of leverage? * (2 Points)
2.4
1.1
2.9
1.6
22. If ₱25,000 is put in a savings account paying interest of 4% compounded annually, what amount
will be in the account at the end of 5 years? (Do not round off between computations. Round off
the final answer to two decimal places. Example of writing your answer 64,125.91) * (2 Points)
30,416.32
23. A company is planning to buy a new truck that will cost P700,000 and will be depreciated on a
straight-line basis over 5-year period. The new truck will replace another that has a book value
of P450,000 and five years useful life remaining. The old truck can be sold for P400,000. The
current tax rate is 35%. How much is the net initial investment for the new truck? * (2 Points)
P300,000
P250,000
P282,500
P317,500
24. The company desires an ending inventory of P140,000. It expects sales of P800,000 and has a
beginning inventory of P130,000. Cost of sales is 65% of sales. How much is the budgeted
purchases? * (2 Points)
P530,000
P790,000
P810,000
P980,000
25. Ran Company wants to determine its cost of common stock equity using the CAPM. The
company's investment advisors indicate that the firm’s beta is equals to 1.3;the risk-free rate is
6%; and the market return is 10%. (Do not round off between computations. Round off the final
answer to two decimal places. Example of writing your answer 2.58%) * (2 Points)
11.20%
26. A company is planning to spend P60,000 for a machine which will be depreciated on a straight-
line basis over 10 year period. the machine will generate additional cash revenues of P12,000 a
year. It will incur additional costs except for depreciation. the income tax rate is 35%. Determine
the payback period reciprocal . ( Round off the final answer to two decimal places. Example of
16.50%
27. The company expects cash collections during the year of P250,000. In addition, it expects
P25,000 in depreciation, P35,000 cash to be paid for direct labor, P2,000 to be paid for supplies
and P55,000 to be paid for raw materials. What is the budgeted net increase in cash for the year?
* (2 Points)
P133,000
P158,000
P183,000
P225,000
28. A company is considering purchasing a new machine. The machine costs P50,000 and requires
installation costs of P2,500. This outlay would be partially offset by the sale of an existing
machine. The existing machine originally cost P10,000 and is four years old. It is being
depreciated under MACRS using a five‑year recovery schedule and can currently be sold for
P15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the
existing machine's market value would be zero. Over its five‑year life, the new machine should
reduce operating costs (excluding depreciation) by P17,000 per year. Training costs of employees
who will operate the new machine will be a one‑time cost of P5,000 which should be included in
the initial outlay. The new machine will be depreciated under MACRS using a five‑year recovery
period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and
capital gains. Determine the net present value of the project. * (2 Points)
3,874.
2,445.
5,614.
7,500
29. The Treasury bill rate at the time of estimation is 15% with a beta of 2.0 and the expected return
on the market is 20%. What is the firm’s required rate of return ? * (2 Points)
20%
25%
30%
15%
30. Statement I: The after-tax cost of debt is equal to the yield to maturity on the firm's debt
adjusted for flotation costs
Statement II: After-tax cost of debt < before-tax cost of debt
Statement III: If rate of return > cost of capital, firm’s value will increase; if rate of return < cost of
capital, firm’s value will decrease. * (1 Point)
All statements are correct.
All statements are incorrect.
Statements I and II are correct, and Statement III is in correct.
Statement I is correct, and Statements II and III are incorrect
31. Assume that a poster company has fixed operating costs of 5,000. Its selling price is P25 per
poster, and its variable operating cost is P10 per poster. What is the breakeven point? * (2 Points)
500 units
200 units
333 units
463 units
32. The company has a P1,000 par value bond outstanding with 25 years to maturity. The bond
carries an annual interest payment of P88 and is currently selling for P925. The company is in a
30% tax bracket. Compute for the approximate after tax-cost of debt. (Round off to two decimal
places between computations. Round off the final answer to two decimal places. Example of writing
your answer 2.58%) * (2 Points)
6.62%
33. Unsystematic risk can be controlled * (1 Point)
through leveraging
by lowering the beta coefficient
through diversification
by widening the range of return
34. Which of the following is incorrect about the cost of common stock equity? * (1 Point)
It is the return required on the stock by investors in the marketplace.
Its net proceeds represent the amount of money to be received minus any flotation costs.
It is the rate at which investors discount the expected stock dividends of the firm to determine its share value.
Two techniques are used to measure this.
35. Statement I: Total risk can be managed by combining operating and financial leverage in different
degrees.
Statement II: In financial leverage, any percentage fluctuation in sales will result in a greater
percentage fluctuation in EBIT.
Statement III: The earnings before taxes is also known as income from operations. * (1 Point)
All of the statements are incorrect
Two statements are correct
Only one statement is incorrect
Only one statement is correct
36. The company has just issued preferred stock. The stock has 8 percent annual dividend and a
₱400 par value and was sold at ₱350 per share. In addition, floatation cost of ₱25 per share must
be paid. Calculate the Cost of Preferred Stock. (Round off to two decimal places between
computations. Round off the final answer to two decimal places. Example of writing your answer
2.58%) * (2 Points)
9.85%
37. What is the cost of retained earnings? * (1 Point)
It is the effective rate that a company pays on its debt.
It is the total amount your business paid as a cost directly to the sale of products.
It is the amount expected by the investors in return with their investment in the company.
It is the cost required to manufacture or purchase a product.
38. An individual borrows ₱150,000 from a bank at 10% annually compounded interest to be repaid
in 6 equal installments. Calculate the principal paid in second year. (Round off the final answer to
the nearest peso. Example of writing your answer 64,125) * (1 Point)
21,385.22
39. A firm is evaluating an investment proposal which has an initial investment of P5,000 and cash
flows presently valued at P4,000. The net present value of the investment is * (2 Points)
(P1,000)
P0
P1,000
P1.25
40. The company has 10,000 ordinary shares with a market value of P25 each. It paid a P1.8 dividend
per share last year. Dividends are expected to grow at a constant rate of 8%. If flotation costs are
5% of the selling price, what is the cost of new equity financing? * (2 Points)
8.19%
15.78%
15.58%
16.19%
41. Statement I: In the EBIT approach, the key assumption is that WACC is constant regardless of the
degree leverage.
Statement II: In Net Income approach, the key assumption is that yield (Y) and ROE remain
unchanged as the debt/equity ratio increases. * (1 Point)
Only statement I is true
Only statement II is true
42. The company reported a sales of 586,500 (36% variable cost). Fixed cost and annual interest
expense is 100,000 and 6,000 respectively. What is the degree of combined leverage? (Round off
to two decimal places between computations. Round off the final answer to two decimal places.
Example of writing your answer 2.58 times) * (2 Points)
1.39 times
43. An individual deposited P35,000 and earns 3% interest compounded quarterly. After six years,
how much money does she has in the bank if she does not withdraw any money and let her
money grow in the bank? * (2 Points)
P42,365.47
P34,756.87
P41,874.47
P35,798.77
44. The future value after 5 years of the Present ₱9,000 is ₱12,350. Find the interest rate that is
compounded quarterly. (Do not round off between computations. Round off the final answer to two
decimal places. Example of writing your answer 2.58%) * (2 Points)
6.38%
45. The company recently invested in a project that has an expected annual cash inflow of P700, 000
for 10 years, and an expected payback period of 3.6 years. How much did the company invest in
the project? * (2 Points)
P1,944,400
2,520,000
P3,600,000
P4,000, 000
46. The company sold 200,000 units of a product. Selling price per unit is P6.25. Variable costs are
60% of the selling price and fixed costs are P300, 000. What is the degree of operating leverage?
* (2 Points)
1.5x
2.5x
1.67x
3.75x
47. Risk measurement used to compare the risks of assets with different expected returns. * (1 Point)
Standard Deviation
Coefficient of Variation
Expected Average Return
Expected Rate of Return
48. Suppose you buy 10 shares of a stock for P2,000. The stock pays no dividends, but at the end of
1 year you sell the stock for P2,200. What is the peso return on your P2,000 investment? *
(1 Point)
2,000
200
220
49. Statement I: Sensitivity analysis can be used to evaluate the impact of a changing specific
assumption on pro forma statements.
Statement II: The pro forma income statement indicates a firm’s financial condition at the end of
the budget period. * (1 Point)
Only first statement is true
Only second statement is true
50. The minimum return that must be earned on a project in order to leave the firm's value
unchanged is * (1 Point)
the internal rate of return.
the interest rate.
the discount rate.
the compound rate.
51. The company is going to invest ₱26,000, ₱34,000, ₱46,000, and ₱54,000 respectively into a
savings account at the end of each year through 4 years. Each of these amounts will compound
at 4% per annum until the 4th year. What is the total expected amount that the company will
have at the end of the 4th year? (Do not round off between computations. Round off the final
answer to two decimal places. Example of writing your answer 64,125.91) * (2 Points)
167,860.86
52. Comparing net present value and internal rate of return analysis * (1 Point)
always results in the same ranking of projects.
always results in the same accept/reject decision.
may give different accept/reject decisions.
is only necessary on mutually exclusive projects.
53. Which of the following is incorrect in computing the cost of capital? * (1 Point)
The formula for cost of Preference shareholders' equity is the dividend yield rate formula.
In computing the cost of long-term debt, interest expense should be net of tax.
The cost of Ordinary shareholders' equity may be computed as: earnings per share divided by market price
per share, net of flotation costs plus growth rate.
In computing the cost of Preference and Ordinary, there is no tax adjustment for the dividends per share since
the dividend is not a tax-deductible expense.
54. The company wants to sell a Php 69,000,000 worth of bonds with a maturity of 25 years. The
coupon rate for the bond is 9.5% and it will be paid annually. The company plans to sell the bond
for Php975 per Php1,050 bond. Other cost directly attributable to selling the bond is Php20.
What is the cost of debt before tax using the approximating cost formula? (Do not round off
between computations. Round off the final answer to two decimal places. Example of writing your
answer 2.58%) * (2 Points)
10.33%
55. Suppose the market premium is 12%, market volatility is 20% and the risk-free rate is 6%.
Suppose a security has a beta of 0.8. Using the CAPM, what is its expected return? (Round
off the final answer to one decimal place. Example of writing your answer 2.5%) * (2 Points)
10.8%
56. The company has a 10% interest bearing, promissory note of 50,000, payable after 5 years. Sales
during the year is 363,375 (20% earnings after taxes). Tax rate is 15%. What is the company's
degree of financial leverage? (Round off to two decimal places between computations. Round off
the final answer to two decimal places. Example of writing your answer 2.58 times) * (2 Points)
1.06 times
57. According to the traditional approach, when it can be said that the capital structure is optimal? *
(1 Point)
100% equity share capital
Increased market value and decreased cost of capital by mix of debt and equity
Increased cost of capital and decreased market value by mix of debt and equity
No combination of debt and equity in capital structure.
58. The company’s stock has a beta-coefficient of 1.5, and its market rate is 15%. With a risk-free rate
of return is 8%. If the market rate increased by 1%, what is the expected rate of return? *
(2 Points)
16.00%
18.50%
18.00%
20.00%
59. The company is constructing a corporate planning model. Cash sales are 40% of the company’s
sales with the remainder subject to the following collection pattern: 60% one month after sale,
30% two months after sales, 8% three months after sales, and 2% uncollectible. If ‘Sn’ is defined
as total sales in month ‘n,’ which of the following expression correctly describes the company's
collection on account in any given month? * (1 Point)
0.36Sn+1 + 0.18Sn+2 + 0.048Sn+3
0.6Sn+1 + 0.3 Sn+2 + 0.08 Sn+3
0.36Sn-1 + 0.18Sn-2 + 0.048Sn-3
0.6Sn-1 + 0.3 Sn-2 + 0.08 Sn-3
60. A company is considering purchasing a new machine. The machine costs P50,000 and requires
installation costs of P2,500. This outlay would be partially offset by the sale of an existing
machine. The existing machine originally cost P10,000 and is four years old. It is being
depreciated under MACRS using a five‑year recovery schedule and can currently be sold for
P15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the
existing machine's market value would be zero. Over its five‑year life, the new machine should
reduce operating costs (excluding depreciation) by P17,000 per year. Training costs of employees
who will operate the new machine will be a one‑time cost of P5,000 which should be included in
the initial outlay. The new machine will be depreciated under MACRS using a five‑year recovery
period. The firm has a 12 percent cost of capital and a 40 percent tax on ordinary income and
capital gains. Determine the The internal rate of return for the project. * (2 Points)
between 7 and 8 percent.
greater than 12 percent.
61. Which of the following is incorrect? * (1 Point)
Before the cost of preferred stock is calculated, any dividend stated should be converted to annual peso
dividends.
After the cost of preferred stock is calculated, any dividend stated should be converted to annual peso
dividends.
After the cost of preferred stock is calculated, any dividend stated should be converted to annual percentage
rate.
Before the cost of preferred stock is calculated, any dividend stated should be converted to annual percentag
rate.
62. If there were 120,000 pounds of raw material on hand on January 1, 2021, 90,000 pounds are
desired for inventory on December 31, 2021 and 680,000 pounds are required for annual
production, how many pounds of raw materials should be purchased during the year? * (2 Points)
650,000
680,000
710,000
890,000
Option 2
63. the company's common stock has a beta, β, of 1.2. The risk-free rate is 6%, and the market return
is 11%. With the following given, the corporation estimates the cost of common stock equity, rs,
to be? (Round off to two decimal places between computations. Round off the final answer to two
decimal places. Example of writing your answer 2.58%) * (2 Points)
12.00%
64. Statement I. Annuity due is paid at the ending of each period.
Statement II. Annuity formulas can be used in solving uneven cash flow.
Statement III. The FV of a mixed stream cash flow is the sum of the expected current value of
future periodic unequal cash flow over a certain period of time at a given discount rate. *
(1 Point)
All statements are correct
All statements are incorrect
Statement I and II are correct and statement III is incorrect
Statement II and III are correct and statement I is incorrect
65. A company is planning to spend P60,000 for a machine which will be depreciated on a straight-
line basis over 10 year period. the machine will generate additional cash revenues of P12,000 a
year. It will incur additional costs except for depreciation. the income tax rate is 35%. Determine
the accounting rate of return. ( Round off the final answer to two decimal places. Example of
5.45%
66. How expected and realized return calculated? * (1 Point)
Alternative possibilities are added by their probabilities, and the results are then added together.
Alternative possibilities are multiplied by their probabilities, and the results are then added together.
Alternative possibilities are multiplied by their probabilities, and the results are then multiplied together.
Alternative possibilities are added by their probabilities, and the results are then multiplied together.
67. Statement I : The most sophisticated forecasting technique is generally the most appropriate.
Statement II: Trend forecast project historical value of a single variable into the future. * (1 Point)
Only first statement is true
Only second statement is true
68. The Stocks A, B and C has a weight of 35%, 45%, and 30%, respectively, with a total portfolio
value of 200,000.
Stock A – 70,000 invested stocks, 10% expected return
Stock B – 90,000 invested stocks, 12% expected return
Stock C – 60,000 invested stocks, 8% expected return
What is the expected return of portfolio? * (2 Points)
12.3%
10.3%
11.3%
13.3%
69. Statement I: The additional risk placed on common stock and the portion of the stockholder’s risk
over and above basic business risk is called business risk.
Statement II: Some of the most common factors affecting business risk are sales price variability,
supply variability, demand variability, and input price variability.
Statement III: Financial leverage refers to the composition of the company’s capitalization that
includes all long-term capital resources. * (1 Point)
All statements are correct.
All statements are incorrect.
Two statements are correct.
Only one statement is correct.
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7/29/22, 3:54 PM ACCO 20123 - Financial Management-

Final Departmental Examination

ACCO 20123 - Financial Management- Final

1. Name (Last name, First name, Middle initial) *

All statements are correct

All statements are incorrect

Two statements are correct

Two statements are incorrect

8. What is not an example of systematic risk? * (1 Point)

9. Statement I. There is only one source of long-term funds.

Statement II. All costs of capital should be recorded after-tax * (1 Point)

Only Statement I is True

Only Statement II is True

Both Statements I and II are True

Both Statements I and II are False

mixed streams are inflows and annuities are outflows

gives no consideration to risk exposure.

Both statements are true.

Only statement I is true

Only statement II is true

Both statements are false

Only Statement I is true

Only Statement II is true

Both statements are true

Both statements are false

Cost of long-term debt

Cost of retained earnings

Weighted Average Cost of Capital

Statement II: After-tax cost of debt < before-tax cost of debt

All statements are correct.

All statements are incorrect.

Statements I and II are correct, and Statement III is in correct.

Statement I is correct, and Statements II and III are incorrect

33. Unsystematic risk can be controlled * (1 Point)

by lowering the beta coefficient

by widening the range of return

It is the return required on the stock by investors in the marketplace.

Two techniques are used to measure this.

All of the statements are incorrect

Two statements are correct

Only one statement is incorrect

Only one statement is correct

37. What is the cost of retained earnings? * (1 Point)

It is the effective rate that a company pays on its debt.

It is the cost required to manufacture or purchase a product.

Only statement I is true

Only statement II is true

Both statements are true

Both statements are false

Expected Average Return

Expected Rate of Return

Both statements are true

Only first statement is true

Only second statement is true

Both statements are false

the internal rate of return.

the interest rate.

the discount rate.

the compound rate.

always results in the same ranking of projects.

always results in the same accept/reject decision.

may give different accept/reject decisions.

is only necessary on mutually exclusive projects.