Financial Management

FINANCIAL MANAGEMENT BY FAYIEEEE
PRELIM TO FINALS
Identify the function being described: The board of directors and finance manager decided
to offer stocks to the public so that they can have the resources for business expansion.
= Acquiring necessary capital
= Acquiring necessary capital
Lancaster Co. and York Co. have the same value of return on assets (ROA). What will
happen if Lancaster Co. adjusts its accounting records for the disposal of unusable
equipment at a loss?
= Lancaster Co.'s ROA will be lower than York Co.

Sexy Corporation’s current ratio is 0.5, while Coke Company’s current ratio is 1.5. Both firms
want to “window dress” their coming end-of-year financial statements. As part of its window
dressing strategy, each firm will double its current liabilities by adding short-term debt and
placing the funds obtained in the cash account. Which of the statements below best
describes the actual results of these transactions?
=Only Sexy Corporation’s current ratio will be increased.
Which of the following statements is true?
= The finance manager must posses knowledge in the areas of accounting, finance, economics
and management.
Which is not included in the group
= Savings Promotion
Which of the following can increase net profit margin?
= Sell merchandise with 20% mark-up from the original price
Which of the following alternatives could potentially result in a increase of current ratio?
=Bought merchandise on account
Stennett Corp.’s CFO has proposed that the company made a new debt and used the
proceeds to buy equipment. Which of the following is likely to occur if this proposal is
adopted?
= Return on Assets (ROA) will decline.
This is concerned with the increase in revenue and decrease in expenses
= Profit maximization
Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of the
following statements can be true?
=Company A and Company B have equal amount of Equity.
This is concerned with the acquisition, financing, and management of assets with some
overall goal in mind. Its decision function includes areas such as investment, financing, and
asset management decisions
= Financial Management
Amazona company wants to increase its debt to total assets ratio, which of the following
activities could make this possible?
= Make a loan
Identify what is being described. The company had a net profit after taxes worth Php
1,000,000. The board and the management decided not to distribute dividends to
shareholders instead, it retained its earnings for the year so that the business can have
resources for future use.
= Increasing the value of the firm
= Increasing the value of the firm
Which is not a function of financial management?
= Personnel Management
Selzer Inc. has a net profit after taxes worth 62,195. It has a total assets worth 3 million, with
a debt-to-equity ratio of 0.64. What is the firm’s return on equity (ROE)?
= 3.4%
Which statement is false
= Savings are possible only when the business has higher expenses than its revenues.
A firm has a profit margin of 15 percent on sales of 20,000,000. If the firm has debt of
7,500,000 and total assets of 22,500,000 what is the firm’s ROA?
= 13.3%
All else being equal, which of the following will increase a company’s current ratio?
=An increase in accounts receivable.
7,500,000, total assets of 22,500,000, and an after tax interest cost on total debt of 5
percent, what is the firm’s ROA?
= 13.3%
This is concerned with the increase in revenue and decrease in costs and expenses
=Profit maximization
What is the ultimate objective of Financial Management?
=Wealth maximization
= 3.4%
adopted?
= Return on Assets (ROA) will decline.
= Savings Promotion
= Make a loan
= The finance manager must posses knowledge in the areas of accounting, finance, economics
and management.
Which of the following alternatives could potentially increase current ratio?
= Bought merchandise on account
Analyze the given choices and identify which one is not included when these finances will
be classified on the basis of source of generation.
= Retained Earnings
Which is considered as medium-term source finance?

= FPL Co. Loaned an amount payable in 2 years.
This fund is used for daily operations
= Working capital
Which is an example of owner's financing?

= Retained Earnings
These are funds that are required to purchase fixed assets such as land, building, plant,
machinery, furniture and fixtures.
= Fixed Capital
In this type of financing, the business entity which has already operated may get funds
internally from depreciation funds and retained earnings.
= Internal financing
This type financing borrows money with interest from financial institutions such as banks
and credit-unions.
= Loan Financing
Which of the following is not a classification of funds on the basis of period?

= External Sources
Which is an example of borrowed funds?
= debentures

= FPL Co. Loaned an amount payable in 2 years.

= Financial decision will affect the entire business operation because decisions have indirect
relationship with the various department functions
= External Sources
In this type of analysis you may compare figures from several years, so you are comparing
the amounts in each account from the past up to the present.
=horizontal analysis
=Acquiring necessary capital

Fama’s French Bakery has a return on assets (ROA) of 10 percent and a return on equity
(ROE) of 14 percent. If equity is equal to 100,000. What is the value of total assets?
=140,000
Minden Co has current assets that consist of cash: Php20,000, receivables: Php70,000 and
inventory: Php90,000. Current liabilities are Php75,000. The current ratio is:
=2.4
FPL Company has cash and cash equivalents worth 10,000; equipment worth 20,000;
accounts receivable worth 15,000; notes receivable worth 12,000 ; accounts payable worth
10,000 and notes payable worth 5,000 maturing after one month. What is the current ratio?
= 1.67
Fama’s French Bakery has a return on assets (ROA) of 10 percent and a return on equity
(ROE) of 14 percent. If equity is equal to 100,000. What is the value of total assets?
=140,000
adopted?
=Return on Assets (ROA) will decline.

=3.4%
What is the ultimate objective of Financial Management?
=Wealth maximization
7,500,000, total assets of 22,500,000, and an after tax interest cost on total debt of 5
percent, what is the firm’s ROA?
=13.3%

This analysis is usually used to understand operational performance of the entity to help in
making their business decisions.
=Internal Analysis
This is concerned with the acquisition, financing, and management of assets with some
overall goal in mind. Its decision function includes areas such as investment, financing, and
asset management decisions
=Financial Management
In this type of financing, the business entity which has already operated may get funds
internally from depreciation funds and retained earnings.
=Internal financing
This fund is used for daily operations
=Working capital
=3.4%
Return on equity is directly affected by
=net income and equity

The current assets and current liabilities of FPL company is 25 and 25 respectively.
Reviewing the past transactions the company purchased merchandise worth 5 and it was
immediately paid. However, it was discovered that this transaction was mistakenly recorded
as a purchase on account. After adjusting the errors, what is the the current ratio?
=1

=The finance manager must posses knowledge in the areas of accounting, finance, economics
and management.
=Acquiring necessary capital

The Merriam Company has determined that its return on equity is 15 percent. Management
is interested in the various components that went into this calculation. You are given the
following information: (total debt)/(total assets) = 0.35 and total assets = 1,000,000. What is
the net income?
=97,500
Return on sales, return on assets and return on equity are examples of
=profitability ratios
The receivables turnover ratio is defined as
=sales divided by receivables
Which of the following alternatives could potentially result in a increase of current ratio?
=Bought merchandise on account

Shepherd Enterprises has a debt-to-equity ratio of 40 percent. The company’s total assets is
equal to Php 800 million. What is the value of the company's total liabilities?
=Php 228,571,429
=Sell merchandise with 20% mark-up from the original price

FPL Co. Statement of Financial Position has Total Assets worth 100,000 wherein 60,000 is
non-current. It also has Total Liabilities worth 200,000 wherein 80,000 is non-current. It was
found out that there was an unrecorded depreciation worth 20,000 and unrecorded
purchase of merchandise on account worth 15,000. What is the current ratio?
=0.41
=Savings Promotion
Fana’s American Bakery has a return on assets (ROA) of 10 percent and a return on equity
(ROE) of 14 percent. If total assets is 100,000, what is the value of its total equity?
= 71,429
FPL Co. Statement of Financial Position has Total Assets worth 100,000 wherein 60,000 is
non-current. It also has Total Liabilities worth 200,000 wherein 80,000 is non-current. It was
found out that there was an unrecorded depreciation worth 20,000 and unrecorded
purchase of merchandise on account worth 15,000. What is the current ratio?
=0.41
Fana’s American Bakery has a return on assets (ROA) of 10 percent and a return on equity
(ROE) of 14 percent. If total assets is 100,000, what is the value of its total equity?
= 71,429
This is concerned with the increase in revenue and decrease in costs and expenses
=Profit maximization
The quick ratio is defined as:
=current assets less inventory, less prepaid expenses. The resulting amount will then be divided
by current liabilities
adopted?
=Return on Assets (ROA) will decline.

Total asset turnover, receivables turnover and inventory turnover ratios measure
=efficiency
=Increasing the value of the firm

=Make a loan
FPL Company has cash and cash equivalents worth 10,000; equipment worth 20,000;
accounts receivable worth 15,000; notes receivable worth 12,000 ; accounts payable worth
10,000 and notes payable worth 5,000 maturing after one month. What is the current ratio?
= 1.67
=Make a loan
The current assets and current liabilities of FPL company is 10 and 20 respectively.
Reviewing the past transactions the company purchased merchandise worth 5 and it was
immediately paid. However, it was discovered that this transaction was mistakenly recorded
as a purchase on account. After adjusting the errors, what is the the current ratio?
= 0.33
Lone Star Plastics has the following data:
Gross Sales 100,000
Gross profit margin 6.0% Tax rate 40%
What is Lone Star’s net income after taxes?
=3,600
Its objective is to provide information about the financial position and the financial
performance and cash flows of an entity that is useful to a wide range of users in making
economic decisions
=Financial Statements
=Financial decision will affect the entire business operation because decisions have indirect
relationship with the various department functions.
Shepherd Enterprises has a debt-to-equity ratio of 40 percent. The company’s total assets is
equal to Php 800 million. What is the value of the company's total liabilities?
=Php 228,571,429
Lone Star Plastics has the following data:
Gross Sales 100,000
Gross profit margin 6.0% Tax rate 40%
What is Lone Star’s net income after taxes?
=3,600
Personnel Management
=Retained Earnings
=Retained Earnings
=Personnel Management
Current assets divided by current liabilities is the definition of the:
=Current ratio
=Savings Promotion
Minden Co has current assets that consist of cash: 20,000, receivables: 70,000 and inventory:
90,000. Current liabilities are 75,000. The quick ratio is
=1.2
=Lancaster Co.'s ROA will be lower than York Co.

=External Sources
=FPL Co. Loaned an amount payable in 2 years.
=Sell merchandise with 20% mark-up from the original price


=Lancaster Co.'s ROA will be lower than York Co.

The Merriam Company has determined that its return on equity is 15 percent. Management
is interested in the various components that went into this calculation. You are given the
following information: (total debt)/(total assets) = 0.35 and total assets = 1,000,000. What is
the net income?
=97,500
Ratios that measure the ability of the company to pay its short-term debts are called:
= liquidity ratios
This is a form of financing which is mobilized through the issuance of securities such as
shares and debenture
= Security Financing
This is the capital invested in total current assets of the business concern.
= Gross Working Capital
This refers to the level of inventory at which the total cost of inventory comprising ordering
cost and carrying cost.
=Economic Order Quantity (EOQ)
FPL company has machineries and equipment worth 150,000, land and building for business
1,000,000, Cash 150,000, Inventories 30,000 and accounts receivables 50,000. He also owes
200,000 to a bank. How much is the gross working capital?
= Php 230,000
FPL Company has a gross working capital of 100,000 and the company has 200,000 total
liabilities of which 150,000 are long term debts. What is the net capital?
= 50,000
FPL Company has a total Assets worth 400,000 of which 250,000 are non current the
company also has 200,000 total liabilities of which 150,000 are long term debts. What is the
gross working capital?
= 150,000
FPL Company has a net working capital of 100,000 and the company has 200,000 total
liabilities of which 150,000 are long term debts. What is the gross capital?
=150,000
Which is not a motive of holding cash?
=Auto Motive
FPL Company owes Php20,000 to supplier A, Php30,000 to Supplier B, 50,000 to Supplier C

and a long term bonds payable 10,000. After struggling in its operations, the company
ended up having Php20,000 cash on hand, Php30,000 worth inventories, Php40,000
Accounts receivable and equipment worth Php50,000. What is the net working capital?
=none of these
This is a measure of both a company's efficiency and its short-term financial health.
=Working Capital
=Auto Motive
This is the process in which a business determines and evaluates potential expenses or
investments that are large in nature.
=Capital Budgeting
This is the after tax cost of long-term funds through borrowing.
=Cost of debt
FLP Company has 1000 existing common shares. The market value of the share is Php 90
and the net earnings is Php 1,000. What is the cost of Capital assuming that the new shares
will be issued at market price?
=1.11%
This is a statistical measure of the variability of a distribution around its mean. It is the
square root of the variance.
=Standard deviation
=1.11%
These are sources of finances which have a required of payment for a period not exceeding
one year.
=Short-term
Which of the following has a wrong order based on the discussion in capital budgeting
process
=Matching of Proposals- Performance Review - Final Approval
A corporation is issuing 10% common stock that should be sold for Php 15 each. The

business will incur flotation costs of Php 5 per share. What is the cost of equity?
=15%
Given:
Debt= 1,000,000 ; Common Shares = 10,000,000 ; Preference Shares = 5,000,000
Cost of Debt = 10% ; Cost of Preference Shares = 5% ; Cost of Equity = 3%
= 650,000
Which does not belong to the classification of the sources of financing?
=based on interest
This determines the amount of profit to be distributed among shareholders and amount of
profit to be treated as retained earnings for financing its long term growth
=Dividend Policy
=Cost of debt
This type of decision making applies when the projects proposed are independent from
each other. The acceptance or rejection of one proposal does not affect the decision on the
other proposals.
=Accept-Reject
business will incur flotation costs of Php 2 per share. With growth rate of 5% What is the
cost of capital?
=16.54%
=1.11%
This is the use of various financial instruments or borrowed capital, such as margin, to
increase the potential return of an investment.
=leverage
Which of the following does not belong to the group?
=Intermediate Approach
If you have a financial source that is required to be paid within four years, you have a
=Medium-term source
These proposals are those that compete with other. Therefore, the acceptance of one
proposal will exclude the acceptance of the other proposals.
=Mutually Exclusive
Examples of this outlay are the purchase of fixed assets such as land and building, plant and
machinery, expenses relating to improvement or renovation these fixed assets and costs
incurred for the research and development projects
=Fixed capital
=Mutually Exclusive
process

These funds are obtained from banks and credit unions
=borrowed funds
Which is not a part of capital budgeting process?
=Observation of proposal making
= Standard deviation
According to this approach, the mix of debt and equity capital can increase the value of the
firm by reducing overall cost of capital up to certain level of debt.
= Traditional Approach
process
=Final Approval - Implementing - Fixing Properties
= based on interest
cost of capital?
=16.54%
process
=Evaluation - Implementing - Performance Review
process
=Final Approval - Implementing - Fixing Properties
= dividend price minus growth approach

=borrowed funds
process
This is a decision support tool that uses a tree-like graph or model of decisions and their

possible consequences, including chance event outcomes, resource costs, and utility.
=Decision Tree Analysis
This is the required return on investment of the preferred shareholders of the company.
=Cost of preference share

=15%
This is the mix or proportion of a firm’s permanent long-term financing represented by

debt, preferred stock, and common stock equity.
=Capital Structure
Given:
Debt= 1,000,000 ; Common Shares = 10,000,000 ; Preference Shares = 5,000,000
Cost of Debt = 10% ; Cost of Preference Shares = 5% ; Cost of Equity = 3%
=650,000
This is the required return on investment of the common shareholders of the company.
= Cost of Equity
These are source of finances are those which are required for a period of more than five
years.
=Long-term
In this approach, the mix of debt and equity capital can increase the value of the firm by
reducing overall cost of capital up to certain level of debt.
=Intermediate Approach
This is the required return on investment of the lenders of a company.
=Cost of debt
Identify what is being described. ABC manufacturing business purchases materials worth
Php 1,000,000 from X company. the ammount is payable within 2 months.
= notes and bank loan ( Mali ‘to)

=1.11%
=Standard deviation
Which does not belong to the group?
= Commercial papers (Mali ‘to)
process
This is a metric that measures the degree to which a company uses fixed income securities
such as debt and preferred equity.
=Degree of Financial Leverage
This policy is usually used when the companies are facing constraints of earnings and
unsuccessful business operation
= Irregular Dividend Policy
If you have a financial source that is required to be paid within ten years, this describes
=Long-term source
=Cost of debt
This is a measurement of the degree to which a firm or project incurs a combination of fixed
and variable costs
=Degree of Operating Leverage
These are sources of finances which have a required of payment for a period not exceeding
one year.
=Short-term
FPL Company plans to make Php50,000 loan with Php7,000 annual interest. If the cost
incurred related to this instrument is Php2,000 and the total tax rate is 30%, what is the
cost of debt?
=10.21%
This is a decision support tool that uses a tree-like graph or model of decisions and their

possible consequences, including chance event outcomes, resource costs, and utility.
=Decision Tree Analysis
This is the process in which a business determines and evaluates potential expenses or
investments that are large in nature.
=Capital Budgeting
The objective of having a good _____________________ is to maximize the value of the firm and
minimize the overall cost of capital.
=Capital structure

=15%
This is the required rate of return on the various types of financing.
=Cost of capital
=based on interest
= 150,000
= Economic Order Quantity (EOQ)
= Working Capital
= Auto Motive
liabilities of which 150,000 are long term debts. What is the total current assets?
= 100,000
= Php 230,000
= Auto Motive
= 50,000
= none of these
= 100,000
= 100,000
= Auto Motive
= Auto Motive
= 150,000
= 150,000
= 50,000
= Auto Motive
= 150,000
= Php 230,000
= Working Capital

= none of these
= 100,000
= Auto Motive
process
=borrowed funds
cost of debt?
=10.21%
This is the required rate of return on the various types of financing.
=Cost of capital
This is a metric that measures the degree to which a company uses fixed income securities
such as debt and preferred equity.
=Degree of Financial Leverage
Identify what is being described. ABC manufacturing business purchases materials worth
Php 1,000,000 from X company. the ammount is payable within 2 months.
= notes and bank loan ( Mali ‘to)

=Mutually Exclusive
This is the required return on investment of the preferred shareholders of the company.
=Cost of preference share
cost of debt?
=10.21%
cost of capital?
=16.54%
= dividend price minus growth approach
= Cost of debt
Which is not a part of capital budgeting process?
= Observation of proposal making
This determines the amount of profit to be distributed among shareholders and amount of
profit to be treated as retained earnings for financing its long term growth
= Dividend Policy
= Mutually Exclusive
This policy is usually used when the companies are facing constraints of earnings and
unsuccessful business operation
= Irregular Dividend Policy
These are source of finances are those which are required for a period of more than five
years.
= Long-term
If you have a financial source that is required to be paid within ten years, this describes
= Long-term source
= borrowed funds
According to this approach, the mix of debt and equity capital can increase the value of the
firm by reducing overall cost of capital up to certain level of debt.
= Traditional Approach

Financial Management

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Financial Management

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FINANCIAL MANAGEMENT BY FAYIEEEE

= Lancaster Co.'s ROA will be lower than York Co.

Which is considered as medium-term source finance?

This fund is used for daily operations

Which is an example of owner's financing?

Which of the following is not a classification of funds on the basis of period?

Which is an example of borrowed funds?

Which is considered as medium-term source finance?

Which statement is false

=Acquiring necessary capital

=Return on Assets (ROA) will decline.

=Company A and Company B have equal amount of Equity.

This fund is used for daily operations

=net income and equity

Which of the following statements is true?

=Acquiring necessary capital

Return on sales, return on assets and return on equity are examples of

=Bought merchandise on account

=Sell merchandise with 20% mark-up from the original price

=Return on Assets (ROA) will decline.

=Increasing the value of the firm

Which statement is false

Which is not a function of financial management?

=Lancaster Co.'s ROA will be lower than York Co.

Which is considered as medium-term source finance?

=FPL Co. Loaned an amount payable in 2 years.

Which of the following can increase net profit margin?

=Sell merchandise with 20% mark-up from the original price

=Company A and Company B have equal amount of Equity.

=Lancaster Co.'s ROA will be lower than York Co.

= Gross Working Capital

=Economic Order Quantity (EOQ)

Which is not a motive of holding cash?

FPL Company owes Php20,000 to supplier A, Php30,000 to Supplier B, 50,000 to Supplier C

Which is not a motive of holding cash?

This is the after tax cost of long-term funds through borrowing.

=Matching of Proposals- Performance Review - Final Approval

A corporation is issuing 10% common stock that should be sold for Php 15 each. The

Which does not belong to the classification of the sources of financing?

This is the after tax cost of long-term funds through borrowing.

Which of the following does not belong to the group?

=Matching of Proposals- Performance Review - Final Approval

Which is not a part of capital budgeting process?

=Observation of proposal making

=Final Approval - Implementing - Fixing Properties

Which does not belong to the classification of the sources of financing?

=Evaluation - Implementing - Performance Review

=Final Approval - Implementing - Fixing Properties

Which of the following does not belong to the group?

= dividend price minus growth approach

=Matching of Proposals- Performance Review - Final Approval

This is a decision support tool that uses a tree-like graph or model of decisions and their

=Decision Tree Analysis

=Cost of preference share

A corporation is issuing 10% common stock that should be sold for Php 15 each. The

This is the mix or proportion of a firm’s permanent long-term financing represented by

= notes and bank loan ( Mali ‘to)

Which does not belong to the group?

= Commercial papers (Mali ‘to)

=Matching of Proposals- Performance Review - Final Approval

=Degree of Financial Leverage

= Irregular Dividend Policy

This is the after tax cost of long-term funds through borrowing.