CHAPTER 1:

Quiz 1:

 This is concerned with the increase in revenue and decrease in costs and expenses
- Profit maximization
 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.
- mprovement of profitability
  Which is not included in the group
- Savings Promotion
 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.
- Increasing the value of the firm
 Which is not a function of financial management?
- Personnel Management
 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
 Which statement is false
- Financial decision will affect the entire business operation because decisions
have indirect relationship with the various department functions.
 Which statement is false
- Savings are possible only when the business has higher expenses than its
revenues.
 Which of the following statements is true?
- One of the benefits of being a financial manager is that you can get funds in the
business entity without prior approval.
 What is the ultimate objective of Financial Management?
- Wealth maximization

Week 002: Financial Statement Analysis

QUIZ 2:

 Which of the following alternatives could potentially increase current ratio?

- NONE OF THESE
 Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of
the following statements can be true?
-
NONE OF THESE
 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.
 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?
- 10.9%
 Amazona company wants to increase its debt to total assets ratio, which of the
following activities could make this possible?
- Make a loan
 Which of the following can increase net profit margin?
- Sell merchandise with 20% mark-up from the original price
 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)?
- 33.4%
 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?
- Gross profit margin will increase.
 All else being equal, which of the following will increase a company’s current ratio?
- None of the statements can increase the current ratio
 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?
- The current ratios of both firms will be increased.
LONG TEST

 This analysis is usually used to understand operational performance of the entity to

help in making their business decisions.
-Internal Analysis

 Return on equity is directly affected by

- net income and equity

 Current assets divided by current liabilities is the definition of the:

- Current ratio
 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
 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 receivables turnover ratio is defined as

- SALES DIVIDED BY RECEIVABLES

 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
 Ratios that measure the ability of the company to pay its short-term debts are called
- liquidity ratios
 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
 Return on sales, return on assets and return on equity are examples of
- PROFITABILITY RATIOS
  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
 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
 The quick ratio is defined as:
- current assets less inventory, less prepaid expenses. The resulting amount will
then be divided by current liabilities

MODULE 3: FINANCIAL REQUIREMENTS AND SOURCES

Quiz:
MODULE 4: THE COST OF CAPITAL, CAPITAL STRUCTURE THEORIES, AND DIVIDENT
POLICY
 This is the use of various financial instruments or borrowed
capital, such as margin, to increase the potential return of an
investment.
- Leverage
 This is the required return on investment of the common
shareholders of the company
- Cost of Equity
 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 is the required return on investment of the preferred
shareholders of the company.
- Cost of preference share
 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 lenders of a
company
 - Cost of debt
 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

CAPITAL BUDGETING
 Which of the following does not belong to the group?
- Intermediate Approach
 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%
 This is the credit extended by
one trader to another for the purchase
of goods and services
- TRADE CREDIT
 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
 If you have a financial source that is required to be paid within ten years,
this describes
 - LONG TERM SOURCE
 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
 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%
 These funds are obtained from banks and credit unions
- borrowed funds
 Which does not belong to the group
- . retained earnings
 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 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
 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
 Which does not belong to the classification of the sources of financing
- based on interest
 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?
- 13.08%
 These are sources of finances which have a required of payment for a
period not exceeding one year.
- Short-term
 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%
-
- Find WACC
- 650,000
 Which of the following is not considered a capital component for the
purpose of calculating the weighted average cost of capital (WACC) as it
applies to capital budgeting?
- Accruals
 The objective of having a good _____________________ is to maximize
the value of the firm and minimize the overall cost of capital.
- Capital structure
 If you have a financial source that is required to be paid within four years,
you have a

- Medium-term source

 Which of the following has a wrong order based on the discussion

in capital budgetingprocess
- Matching of Proposals- Performance Review - Final Approval
 This is a statistical measure of the variability of a distribution around its
mean. It is the square root of the variance.
- Standard deviation
 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

 These proposals are those that compete with other. Therefore, the
acceptance of one proposal will exclude the acceptance of the other
proposals.

- Mutually Exclusive

 Which is not a part of capital budgeting process?

- Observation of proposal making

 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

 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

WORKING CAPITAL MANAGEMENT

 This is the capital invested in total current assets of the business concern

- Gross Working Capital

 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 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

 Which is not a motive of holding cash?

- AUTO MOTIVE

 This refers to the level of inventory at which the total cost of inventory
comprising ordering cost and carrying cost.

- Economic Order Quantity (EOQ

 This is the amount of profit, or return, that an individual can expect based
on an investment made.

- Accounting Rate of Return

 These are goods which have not yet been committed to production in a
manufacturing business concern

- Raw materials

 This is the excess capital over the minimum amount of working capital that
must be maintained.

- Temporary Working Capital

 This includes materials which have been put into production process but
have not yet been completed

- Work in Progress

 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 time required to recover the initial investment in a project.

- Payback Period

 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 minimum amount of capital that must be maintained

- Permanent Working Capital

 The difference between the present value of cash inflows and the present
value of cash outflows.

- Net Present Value

 Which does not belong to the group?

- Goods in transit

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

- Profitability Ratio

 Which is not an objective of inventory management?

- To avoid under stock of inventory and to let the entity have over stocks

 This refers to the variability of returns due to fluctuations in the securities

market which is more particularly to equities market

- Market Risk

 This one measures and considers the cash inflows earned after pay-back
period.

- Post-Payback Profitability

 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 net working capital?

- 100,000

 This refers to a situation in which possible future events can have reasonable
probabilities assigned while uncertainty refers to situations in which there is no viable
method of assigning probabilities to future random events.

- RISK

 Which is not an objective of inventory management

 - To maintain optimum inventory to minimize the profitability

 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 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 is the completed products and is already final output of the production
process

- Finished Goods

SPECIAL FINANCING
FINALS
 Which statement is false?

- b. A Factoring portfolio is structured and maintained to match the

investment objectives stated in its prospectus.

 Which of the following is not a form of special financing?

- Online Bankng

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

- merchant banking

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

- Special Finance

 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 the money provided by investors to startup firms and small

businesses with perceived long-term growth potential

- venture capital
 Which statement is false?

- d. Lease may be defined as a contractual arrangement wherein the

lessor makes periodic payment to the lessee.

 This is an investment made by a company from one country into a

company from another country.

- Foreign Direct Investment

 This is the selling of accounts receivable at a discount to a third-party

funding source to raise capital.

- Factoring

 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