FINANCIAL MANAGEMENT

This is concerned with the increase in revenue and decrease in expenses - Profit maximization

What is the ultimate objective of Financial Management? - wealth

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.

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

A firm has a profit margin of 15 percent on sales of 20,000,000. If the firm has debt of 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

All else being equal, which of the following will increase a company’s current ratio? - An increase in
accounts receivable.

Which of the following alternatives could potentially result in a increase of current ratio? - Bought
merchandise on account

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 statement is false - Financial decision will affect the entire business operation because decisions
have indirect relationship with the various department functions.

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

This is a form of financing which is mobilized through the issuance of securities such as shares and
debenture - Security Financing

This fund is used for daily operations - Working 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

Which is an example of owner's financing? - Retained Earnings

Which is considered as medium-term source finance? - FPL Co. Loaned an amount payable in 2 years.

This type financing borrows money with interest from financial institutions such as banks and credit-
unions. - Loan Financing

These are funds that are required to purchase fixed assets such as land, building, plant, machinery,
furniture and fixtures. - fixed capital

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 an example of borrowed funds? - debentures

Gross profit margin is a profitability ratio - T

Finance manager looks for the possible source of fund having minimal cost - T

Financial management is also known as business finance - T

Ratio analysis is a control device in the improvement of profitability - T

Shares and debenture is also called as corporate securities - T

Savings are possible when the business earns huge revenue - F

Wealth maximization is increasing the value of business- T

Mitigating any associated risk of loss is Wealth maximization - T

Financial statement are records that outline the financial activities of a business - T

Operating activities in cashflows is about operating expenses - T

Financial Statement Analysis based on materials used maybe classified as Horizontal analysis and vertical
analysis - F

Price levels helps to maximize profit - T

Acquisition of fund is about finding possible sources of profits - F

The elements of financial statement include the financial position and financial performance - T

Activity ratio is also known as efficiency ratio - T

Investment is an asset in the company - T

Leverage ratio measures the short-term obligation of the the business - F

Financial Management is an asset management decisions - T

Direct materials is variable production costs - T

Liquidity ratios are financial metrice to determine a company's ability to pay its long-term debts - F

Financial management is also known as corporate finances - T

Cashflows means cash inflows - F

Finance manager must be knowledgeable in the area of accounting, finance, economics and
management - T

Financial Planning is important in Financial Management - T

Proper use of funds leads to the improvement of the operational efficiency of the business - T

Diversification is should be adopted to avoid risk - T

Financing is not considered as cashflows activity - F

Output levels is about finished goods produced - F

Wealth maximization would decrease the shares held by stockholders - F

Acquisition of Funds should come first before financial planning - F

Salaries of employees in the accounting department is considered production costs - F

Wealth is the true value or net worth of business - T

Vertical analysis are measured based on the relationship of each item in the Financial Statement with
respect to the amount of a certain account - T

Engaged in buying stocks is a form of investment - T

Avoiding wastages in the production helps to maximize profit - T

Good Financial management is the key for sound financial condition. - T

Finance Manager plays a big role in Accounting function - F

To maximize profit is to decrease the output - F

Cash flow analysis is not important in maximizing the wealth of the business - F

Influential factor in the manufacturing is the production costs - T

Profit maximization is the objective of Financial Management - F

When expenses are greater than revenue, the result is profit - F

Financial management is important to have a smooth operation in the business. - T

Financial position is about how the business generate revenue - F

Seeking for the highest possible returns on funds invested in the business is health maximization - T

Forecasting means the Budget report - T

Investing is one of the activities in cashflows - T

Accounting and Finance can be one department - F

Statement of Changes in Equity is also a Financial Statement - T

Budgetary control is a tool to improve profitability - T

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

If you have a financial source that is required to be paid within ten years, this describes - Long-term
source

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

based on interest

Which does not belong to the group? - Commercial papers is wrong retained earnings might

Which of the following has a wrong order based on the discussion in capital budgeting process -
Matching of Proposals- Performance Review - Final Approval
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

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 mix or proportion of a firm’s permanent long-term financing represented by debt, preferred
stock, and common stock equity. - Capital Structure

This is the use of various financial instruments or borrowed capital, such as margin, to increase the
potential return of an investment. - leverage

If you have a financial source that is required to be paid within four years, you have a - Medium-term
source

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

This is a statistical measure of the variability of a distribution around its mean. It is the square root of the
variance. - Standard deviation

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 a measurement of the degree to which a firm or project incurs a combination of fixed and
variable costs - Degree of Operating Leverage

This is the required return on investment of the preferred shareholders of the company. - Cost of
preference share

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

A corporation is issuing 10% common stock that should be sold for Php 15 each. The business will incur
flotation costs of Php 2 per share. With growth rate of 5% What is the cost of capital? - 16.54%

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 rate of return on the various types of financing. -

Cost of capital

Which of the following has a wrong order based on the discussion in capital budgeting process -
Matching of Proposals- Performance Review - Final Approval

This is a measure of both a company's efficiency and its short-term financial health. - Working Capital
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

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)

Which is not a motive of holding cash? - Auto Motive

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 total current assets? - 100,000

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 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
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

FPL Company has a gross wo<rking 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

Mutual Exclusive decision are proposals that compete with other and the acceptance of one proposal
will exclude acceptance of the other proposal - T

Common share other name is ordinary share - T

Traditional approach states that debt and equity can increase the value of the firm by increasing cost of
capital - F

Interest rate risk is due to the variability from the changes in the level of interest rates - T

A bad investment can endanger the survival of the entity - T

All proposals are accepted. - F

Business risk arises due to the presence of the fixed cost of operations - T

Irregular dividend policy is a temporary solution to meet the financial problems - T

Following the right process in capital budgeting leads to good investment - T

Implementation of the project must be time bounded. - T

Common stock is the same with preferred stock - F

Decision Tree analysis is helpful for taking risky and simple decisions - F

Cost of equity can be calculated using Dividend price approach - T

The first step in the Capital budgeting process is the Evaluation - F

Capital rationing decision is anchored to highest return - T

The required return on investment of the lenders is known as cost of debt - T

The possible events in the use of Decision tree analysis are assigned with the probability. - T

Net Income approach is the value of earnings before interest and taxes - T

Cost of capital is the required return on the various types of financing - T

Inflation leads to reduction in the purchasing power - T

The project having a higher standard of deviation is said to be less risky - F

Leverage is the use of various financial instruments or borrowed capital - T

Mix of net income approach and net operating income approach is a traditional approach - T

Land and building is a Capital Expenditure - T

Net Present Value is the difference between the present value of cash inflows and cash outflows - T

Standard deviation is the square root of the variance - T

Cash inflow and cash outflow is not required in capital budgeting - F

Capital cannot be in the form of intangible assets - F

Dividend policy is one of the crucial functions of finance manager - T

Financial risk is the loss inherent in financing which may impair the ability to provide projected return - T

capital is the same with financial resources available for use - T

Stable dividend policy means payment of certain minimum amount of dividend regularly - T

Capital budgeting is the process to determine potential expenses - T

Coefficient of variation measures relative risk per unit of expected value - T

Operating leverage is the metric that measures the degree to which a company uses debt and preferred
equity - F

Profitably Index is also known as benefit-cost ratio - T

Evaluation means screening the proposals - T

Uncertainty refers to a situation in which possible future events can have reasonable probabilities - F

There is no such thing as NO Dividend Policy - F

There is no relationship among the capital structure and value of the firm - F

Preferred shareholders have the right to vote - F

Budgeting is the planning on How resources and not how much will be used for a certain thing - F

Capital budgeting avoids over-investment or under-investment - T

Net Operating Income approach is the same with Net Income approach - F
Expected value is about probabilities of occurrence - T

Risk refers to situations in which there is no viable method of assigning probabilities to future random
events - F

Capital structure is the mix proportion of debt, preferred stock and common stock equity - T

Dividends is the distributed net profits among shareholders - T

Payback period, net present value, accounting rate of return are some of the methods used in
evaluation - T

Planning committee approves the proposal with the help of profitability condition. - T

This is essentially an accounting strategy with a focus on the maintenance of a sufficient balance
between a company’s current assets and liabilities - Working Capital Management

This includes materials which have been put into production process but have not yet been completed -
Work in Progress

Which is not an objective of inventory management? - To maintain optimum inventory to minimize the
profitability

This one measures and considers the cash inflows earned after pay-back period. - Post-Payback
Profitability

This is also known as the benefit-cost ratio of a project. - Profitability Ratio

In this decision type of decision making, there are more than one proposal to be chosen however the
firm has limited funds so that’s why they must ration these project proposals. Usually, they select a
group of projects that yield the highest total return given such limited funds. - Capital Rationing

This is the rise in inflation that leads to reduction in the purchasing power which influences only few
people to invest due to Interest Rate Risk which is nothing but the variability of return of the investment
due to oscillation of interest rates due to deflationary and inflationary pressures. - Inflation Risk

This is the discount rate that equates the present value of the expected net cash flows with the initial
cash outflow - Internal Rate of Return

This is the completed products and is already final output of the production process - Finished Goods

This is the excess capital over the minimum amount of working capital that must be maintained. -
Temporary Working Capital

This is the selling of accounts receivable at a discount to a third-party funding source to raise capital. -
factoring
It is contractual agreement between the owner of the assets and user of the assets for a specific period
by a periodical rent. - lease

This is an investment made by a company from one country into a company from another country. -
Foreign Direct Investment

Which statement is false? - Lease may be defined as a contractual arrangement wherein the lesor makes
periodic payment to the lessee.

This is the money provided by investors to startup firms and small businesses with perceived long-term
growth potential - venture

This is an industry for borrowers with a limited or tainted credit history. -

This is one of the fee based financial services which includes underwriting, consultancy and other allied
services to the business concern. - merchant

Which of the following is not a form of special financing? - Online Bankng

This is an investment vehicle for investors who pool their savings for investing in diversified portfolio of
securities with the aim of attractive yields and appreciation in their value. - mutual fund

Which statement is false? - A Factoring portfolio is structured and maintained to match the investment
objectives stated in its prospectus.

Speculative motive of handling cash is to take advantage of temporary opportunities - T

Lease financing is assets based finance - T

Credit analysis determines the creditworthiness of a business - T

Transaction motive in holding cash is to meet payments - T

Speculative motive of handling cash is to take advantage of temporary opportunities - T

Lease financing is assets based finance - T

Credit analysis determines the creditworthiness of a business - T

Transaction motive in holding cash is to meet payments - T

Centralized Disbursement System takes time for collection from the entity's accounts. - T

In venture capital, there is possibility that investors will be the owners in the future - F

Gross working capital is the capital invested in total current assets -T

Inventory management is about purchasing, handling, storing and recording. - T

Mutual fund is a trust that attracts savings - T

Managing working capital means managing the owners' equity. - F

If the current assets exceed the current liabilities it is said to be a positive working capital - T

Work in Progress is not an inventory -F

Special finance is an industry for borrowers - T

Venture Capital termed as short-term funds in equity - F

Merchant banking is one of the fee based financial services - T

Working capital management is an accounting strategy - T

Purchase of raw materials is capital budgeting - F

Factoring is selling accounts receivable at a discount to a third party - T

The more predictable the inflows and outflows of cash, the more cash that needs to be held for
precautionary needs - F

Lock Box system is a post box - T

In factoring of accounts receivable, commercial bank can act as factoring agent - T

Cash was received from factoring agent who is the third party - T

Venture involves high risk but has strong potential of high profitability - T

Raw materials are goods which have not yet been committed to production - T

Payback period is the result of Initial investment/Annual Cash Inflows - T

Playing the float is not an advantage - F

inventory management ensure the level of required inventories to avoid cost - T

Acquisition of land and building is capital budgeting - T

Capital budgeting is a long-term venture - T

Determining optimum level of inventories involves two types of costs - T

Offering discounts for early payments avoids cost - T

Finished goods are the output or produced - T

The last step in the capital budgeting process is the final approval - F

Work in Progress is different from Work in Process - F

Net Working capital is the excess of total assets over the total liability - F

Lease is a contractual arrangement in which the owner of the asset provides the asset for use to
another. - T

Renovation or lease improvement is not considered as capital budgeting - F

An efficient working capital management system uses financial ratios - T

The types of cost involved in inventory management are the ordering costs and carrying costs - T

Knowing where to purchase is one of the objectives in Inventory management - T

Cash is a non-current asset - F

Performance review is comparing actual results to standard results -T

Merchant banking also provides non financial services - T

Lease financing is not a periodical rent - F

Permanent working capital is the minimum amount of capital that must be maintained at all times - T

Inventories constitute the most significant part of current assets of the business concern - T

Collection department is said to be efficient if the result of accounts receivable turnover is within the
credit terms - T

Working capital refers to permanent working capital - F

Mutual Funds are operated by finance manager - F

The main purpose pf receivables management is to promote sales and profit - T

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