Business Finance

Quiz 2

Name
Year & Section
Date

True or False

1. From the perspective of a corporation, financial management deals with decisions that are
supposed to maximize the value of shareholders’ wealth.
2. Share of stocks represent the form of ownership in a corporation.
3. Treasury Bill is generally default-free as government will exert all effort to pay.
4. Money Market Fund are usually invested in money market instruments, treasuries and
commercial papers.
5. Commercial Paper is issued by financially-sound businesses to fund investments in inventories
and receivables.
6. Federal Bond is a United States type of long-term debt and not applicable in the Philippine
setting.
7. Municipal bonds, local government bonds is less risky than government securities.
8. Corporate bonds is less risky than government securities and rely on the financial soundness of
the company.
9. Preferred stock is Issued by cooperatives in exchange for units of ownerships.
10. In common stocks owners are not entitled to vote on the selection of directors and other
important matters
11. Promoting good relationships with customers and distributors is one of the responsibilities of VP
for Sales and Marketing.
12. A Board of Directors responsibility includes performing all areas of management: planning,
organizing, staffing, directing, and controlling.
13. More investments mean more jobs can be created.
14. VP for Finance provides assistance in payroll preparation.
15. Investment and Financing decision is a major responsibility of our VP for Finance.

Multiple Choice:

1. Using the handy ROA formula, let’s compute ROA.

Say your business is in the technology industry, and the average ROA is 14.50%. Your business,
ABC Company, has a net income of $10,000. Your total assets equal $65,000.

a. 15.38
b. 14.83
c. 16.33
d. 17.88
2. As an example of gross margin, a shoe maker might sell a pair of shoes for Php50.00. They cost
Php15 to make, yielding the retailer a gross profit of Php35. Compute for the gross profit
margin.

a. 70
b. 60
c. 50
d. 40

3. If Christie’s Jewelry Store sells custom jewelry to celebrities all over the country. Christie reports
the following numbers on her financial statements.
Cost of goods sold Php1,000,000.00
Rent Php15,000.00
Wages Php100,000.00
Other Operating Expenses Php25,000.00
Compute for the Operating Margin Ratio

a. .36
b. .37
c. .38
d. .35

4. If a business holds:
Cash = $15 million
Marketable securities = $20 million
Inventory = $25 million
Short-term debt = $15 million
Accounts payables = $15 million
The current ratio is?

a. 2.0
b. 1.0
c. 3.0
d. 4.0

5. Consider the balance sheet of Greenshaw Furnitures showing the following data:
Cash: $200,000
Marketable securities: $300,000
Receivables: $2,500,000
Inventories: $1,800,000
What is the value of the company’s quick assets?

a. $3million
b. $4million
c. $2million
d. $1million

6. Boom Co. provides for the following details to help investors calculate the debt ratio:
 Short-Term Assets – $30,000
Long-Term Assets – $300,000
Total Debt – $110,000

a. .33
b. .22
c. .11
d. .44

7. Company X applied for a loan. As it had multiple borrowings to manage simultaneously, the
lenders found the ICR first to decide whether to approve or disapprove the loan amount. The
lenders found that the EBIT is $15,000, and the interest expense is $1700, $1500, and $2000.
What is the company’s Interest coverage ratio?

a. 2.88
b. 8.82
c. 88.2
d. 28.8

8. Sally’s Tech Company is a tech start up company that manufactures a new tablet computer. Sally
is currently looking for new investors and has a meeting with an angel investor. The investor
wants to know how well Sally uses her assets to produce sales, so he asks for her financial
statements.

Here is what the financial statements reported:

Beginning Assets: $50,000

Ending Assets: $100,000
Net Sales: $25,000

Compute for the total assets turnover ratio.

a. .33
b. .35
c. .37
d. .40

9. Fisher Company has annual gross sales of $10M in the year 2015, with sales returns and
allowances of $10,000. Its net fixed assets’ beginning balance was $1M, while the year-end
balance amounts to $1.1M.

a. 9.51
b. 9.15
c. 5.19
d. 5.91
10. Trinity Bikes Shop is a retail store that sells biking equipment and bikes. Due to declining cash
sales, John, the CEO, decides to extend credit sales to all his customers. In the fiscal year ended
December 31, 2017, there were $100,000 gross credit sales and returns of $10,000. Starting and
ending accounts receivable for the year were $10,000 and $15,000, respectively. John wants to
know how many times his company collects its average accounts receivable over the year.
Compute for the receivable turnover in days.

a. 50.69
b. 56.90
c. 59.06
d. 59.00