MANAGEMENT ADVISORY SERVICES A. Lee • E.

Araöas

MAS Module No. 4

MAS — 10, 11, 12 Multiple-Choice Questions
(MCQs)
sources. CMA/ClA/RPCPA/AlCPNVarjous test banks
MAS - 10: CAPITAL BUDGETING (84 MCQS) Capital
budgeting is concerned with c a. Decisions affecting only capital-
intensive industries
b. Analysis or short-range decisions
c. Analysis of long-range decisions
d. Scheduling Of Office personnel in Office buildings
2. Naga Company, is considering the sa!e of a machine with a book value of P 80,000 and 3 years remaining in its useful
life. Straight-line depreciation of P 25,000 annually IS available. The machine has a current market value of P
100,000. What is the cash flow from selling the machine if the tax rate is 40%? ca. p 80,000 C. P 92,000
b. P 88,000
3. A company is considering replacing a machine with one that will save p 50,000 per year in cash operating costs and
has P 20,000 more depreciation expense per year than the existing machine. The tax rate is 40% Buying the new
machine will increase annual net cash flows Of the company by
a. P 38,000 c. P 20,000
b. p 30,000
4. Old equipment With a book value Of P 15,000 will be replaced by new equipment with a purchase price of P 50,000,
exclusive of freight charges of P 2,000. The market value of the old equipment is p 11,000. Repair costs of p 2,000
can be avoided if the new equipment is acquired. Assume a tax rate of 35%. What is the initial (net) investment of
the project?
a. p 33,800 c. P39,700
b. P 38,300 d. P 52,000

Costs (Cash outflows): 50,000 + 2,000 - P 52,000

Savings (Cash inflows): 11,000 + 0.35 (15,000 - 11,000) 2,000 (1 - 0.35) P 13,700

5. The most convenient way to handle proceeds from the disposal Of an old asset is to c a. Treat it as a cash flow
C. Offset the amount against thc cash outlay
b. Treat it as a reduün in salvage value d. Add to the investment
6. Legaspi Company is considering replacing a machine with a book value of P 400,000, a remaining useful life
Of 5 years, and annual straight-line depreciation of P 80,000. The existing machine has a current market value'
of P 400,000. The replacement machine would cost P 550,000, have a 5-year life, and save P 75,000 per
year in cash operating costs. If the replacement machine would be deprecated using the straight-line method
and the tax rate is 40%, what would be the net investment required to replacc the existing machine?
B a. p 90,000 C. P 330,000
b. P 150,000 d. p 550,00
7. In deciding whether to replace a machine, which of the following is NOT a sunk cost?
a. The expected resale price of the existing machine
b. The book value of the existing machine
c. The original Of the existing machine
d. The depreciated cost of the existing machine
8. In computing the initial investment for decision-making, taxes would be relevant for all Of tho following, EXCEPT:
a. Avoidable repairs of old asset
b. Profit on sale of o!d asset replaced by a new one
C. Increase in working capital required to support new capital investment
d. Loss on write-off of other assets disposed because of new capital investment
a. c.
b. d.

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 MAS Module 4
MAS 10, 11 & 12
9. A company is considering a project that requires a P 50,000 working capital investment. The company's tax ratc is
40%. In a capital budgebng analysis, the Initial investment in working capital should be: c a. Multiplied by
(1-0.40) and shown as a net P 30,000 cash outflow
b. Multiplted by the rate (0.40) and shown as a net P 20,000 cash outflow
c. Shown as a cash outflow Of p 50,000
d. Ignored
10. To approximate annual cash inflow, depreciation is
D a. Added back to net income because it is an inflow Of cash
b. Subtracted from net income because it is an outflow of cash
C. Subtracted from net income because it is an expense
d. Added back to net income because it is not an outflow Of cash
11. Daet Inc.'s depreciation deduction last year was p 50,000 and its tax rate was 30%. The company's tax savings from
the depreciation tax shield for the year was p 15,000 P 50,000
•p 35.000 P 30,000

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MCQs:
12. A project costing P 180,000 will produce the annual cash benefits and salvage value:
NFW
Revenue p 150,000 p 180.000
Cash operating costs 70,000 60,000
Annual depreciation 50,000

Income tax, •16%

What is the incremental annual cash income after
a. P 30,000 c. p 40,000
b. P 30,800 d. P 38,000
13. Nabua Company is considering replacing a machine with a book veluc of P 200,000, a remaining useful life of 5 years,
and annual straight-line depreciation of P 40,000. The existing machine has a current market value of p 200,000. The
replacement machine would cost P 300,000, have a 5-year life, and save P, 100,000 per year in cash operating costs.
The replacement machine would de'irectated using the straight-line method and the tax rate is 40%. What would be the
increase in annua' net cash flow if the company replaces the machine?
a. p 60,000 P T„oeo
b. P 68,000O. P 84,000
14. Which statement describes the relevance of depreciation in c?lculahno cash flows?
a. Depreciation is relevant only when income taxes exist
b. Depreciation is always relevant
c. Depreciation rs never relevant
d. Depreciation ts relevant only with discounted cash flow mcthods
15. Ligao Company is analyzing a capital investment proposal fer a new machinery to produce a hew product over the
next 10 years. At the cnd of ten years, the machinery must be disposed of with a zero net book value but with a scrap
salvage value of P 20,000. It will require some p 30,000 to remove the machinery. The applicable tax rate is 35%.
What is the approximate "end-of-life" cash now based on the foregoing information?
a. Inflow of P 30,000 c. 10,000
b. P 6,500 d. 17,COO
16. Cost of capital is
a. The amount the company must pay its pi.t,l. assets

a. c.
b. d.

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MéQs: MAS- 10, 11 & 12
b. The dividends a company must pa'/ on its equity securities.
c. The cost the company must incur to obtain Its capital resources.
d. The cost the company IS charged by investment i•ankers who handle the issuance of equity or longterm debt
securities.
17. For a certain project, the return that investors demand for investing In a firm is known Gs:
D a. DCF rate Of return c. Payback
b. Net present value d. Cost of capital
18. In an investment in plant asset, the return that keeps the market price of the firm stock unchanged is
a. Net present value C. Adjusted rate Of return
b. Cost of capital d. Unadjusted rate of return
19. Tabaco Co. has preferred stock with a par value o! P 100. Sei%nrJ price is p 123.50 per share and flotation Costs arc P
0.50 pcr share. If tax rate 20%, tnen what the cost of preferred stock?
a. 4.03% c. 4.7%
b. 4.07%
SOLUTION: dividend Yield = dividend per share market price share (net) 5% (100) (123.50 — 0.50)
•20. Pili Company is attempting to compute the cost Of internal and external equity. The companvs common stock is
currently selling at P 62.50 per share with flotation cost of P 5 per share. The next dividend per share is P 5.42. Earnings and
dividends are expected to grow at a constant ratc of 5%. What is the cost of new common stock (CIS) and retained earnings
(R/E)?
a. CIS: 13.67%; R/E: 13.67% c. cys• 13.67%; R,'EI 14.43%
b. uS: 14.43%; R/E: 13.67% d. crs• 14.43%; R/E: 14.43%
NOTE: 'Flotation cost' is deducted from market price in computing cost of common and preferred stock; it is ignored in
computing cost of retained earnings.
22. The market value of Bato Company's common stccy (book value: P estimated at P 60 M and the market value of its
interest bearing debt (book value: P 35M'; is estimated at P •IOM. The average before tax yield on these liabilities is
15% per year. Income taxes are 40% The company is to pay a dividend of P 10 per share and the is selling at a pace of
P 100 per share. The grov.rth rate of dividend is projected to be 2.5% per year. What is the weighted average cost Of
capital (WAC) of the company as a whole?
21.5%
b. 11.1%
23. The weighted average cost of capital approach to decision makinq is affccted by the
a. Value of common stock
b. Current budget for expansion
C. Cost of debt 0LManding
d. Proposed mix of debt, equity, and e.xi%ting funds uced to implement. the project
24. A company with cost of capital of 15% plans to finance an investment with debt that'tæars 10%intcrest. The rate it
should use to discount the cash flows is
10% 25%
15% 150%

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Supplemental Notes on Costs of Capital: DIVIDEND GROWTH MODEL and CAPITAL ASSET PRICING MODEL
According to the Dividend Growth Model (also regarded as Gordon Mode!), earnings and dividends are assumed to Increase
over tme at a conÄant growth rate (G). The cost of capital is computed based on the following:

D,
The cost equity represents the retum that equity investors require on their investment in the firm. This is the same
KL that may be computed based on the Capital Asset Pncing Model (CAPM). Using the approach of computing cost of
common equity and retained earnings, the formula must be used based on the Security Market Line (SMC) approach:

a. c.
b. d.

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MAS 10, 11 & 12
Where:
KE Expected rate of return (investor's required rate of return)
KRI Risk-free rate (rate of return an investor receives from investment in a riskless like BSP T-bills)
KM Market return (required return on the average stock in the market)
KM - —Y Market risk premium (additional return over the risk-frec rate that investors demand in Order to move
investments into the stock market in general)
Beta coefficient (sensitivity of a stock to market movement, measure of a security's systematic risk) NOTE:
See discussion on concepts and measures ofRISKS on mg-es 17 to 18.

The divldend to be used in the cost of capital calculation must be a prospectiveone. Assuming the growth rate (G) is 2%
and the most recently declared dividend is P 2.00 (Do), the amount Of dividend to be used is P 2.04 (DI). This is arrived at
through the following: P 2.00 (1 + .02).

The growth rate may also be computed based on: G = Return or; Equity (ROE) x Retention Ratio
NOTE: MAS — 12 notes and exercises or.' Yeturn on equity'and Yeten&on ratio.
pc Price in period O pnce)
The current market share price must be computed net orflotation costs. A flotabon cost is simply defined as the cost Of
issuing or Toating' securities in the market. This is normally incurred by issuing Initial Public Offering (IPO) shares in
the exchange market. The typiül costs of selfing stock are (1) underwriter's spread (2) other direct expenses (3) indirect
expenses (4) abnormal returns, and (5) underprictng.
24. The length of time required to recover thc initial cash outlay for a project is determined by using the:
a. Discounted cash flow method c. The net Drcscnt value method
b. The payback methcxi d. The simp!e rate Of return
25. An advantage of using the payback method is that the method is:
a. Simple to compute C. Precise in estimates Of profitability
b. Not based on cash flow data d. Insensitive to the life of the project
26. Iriga Company is considering a certain projed with the fo!lowing projected cash Income after taxes for 4 years, the
life of the project: year 1, P 11,000; year 2, P 9,000; year 3, r' 8,000; year 4, P 7,000. If the project requires an
investment of P 25,000 with a salvage value of P 5,000, what is the payback period?
a. 2.265 years 2.526 years
b. 2.562 years d. 2.625 years
27. Albay, Inc. recently acquired a machine at a cost of P 64,000. It will be depreciated on a straight-line basis S years,
with no salvage value. Albay expects that this machine wili produce P 18,000 annual net cash flow before income
tax. Assuming an income tax rate of 50%, the appropnate payback period on this investment is: (Hint: compute cash
now aftertax)
a. 3.6 years7.1 years
b. 4.9 years d. 8 years
28. A company is planning to buy a machine that costs p 12,000 and has an annual depreciation for tax purposes of P
2,400 for 5 years. The machine is expected to result in cash savings from Operations of P 4,000 per year. If the tax
rate is 50%, then what is the payback period for the new machine?

B a. 3 years
b. 3.75 years d. 6 p2ars
29. Bulan Company is planning to purchase a new machine. The payback period estimated to be 6 yean project's after
tax ash flow is estimated to be p 2,000 yearly for the first three years and p 3,000 yearly f", next three years Of the
payback period. Annual depreciation of p 1.300 will be charged to income for each Of the years of the payback
period. The machine will cost:
a. P 15,000 e. p 9,000
b. P 12,000 d P 6,000
30. Oas Company is planning to purchase a new machine for P 30,000. The payback period is expected to be five
years. The new machine is expected to produce cash flows frotn operations, net of income taxes, of P 7,000 per
year in each of the next three years and P 5,500 in the fourth yea:. Depreciation of P 5,000 a year will be charged
to income for each of the five years of the payback period. What is the amount Of cash flow from operations, net
Of income taxes, that the new machine is expe<cd to produce in the last (fifth) year Of the payback period?

a. c.
b. d.

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MéQs: MAS- 10, 11 & 12
B P 1,000 P 5,coo
P 3,500 P 8,500

a. c.
b. d.

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31. The payback period considers depreciation expense (DE) and time value of money (TMV) as follows:
a. DE, relevant and NM, relevant c. DE , irrelevant and TVM, relevant
b. DE, irrelevant and NM, irrelevant d. DE, retevant and TVM, irrelevant
32. The payback method assumes that all cash inflows are reinvestetl to yield a return equal to
a. The discount rate c. The intcrnai retc of return
b. The hurdle rate d. Zero
33. Buhi Company is studying a project that would have a ten•vear ;iie and would require a p 800,000 investment In
equipment that has no salvage value. The project would provtae net operating income each year as follows for the life
Of the project:
Sales P 500,000
Less: cash variable expense;
Contribution margin 400,000
Less: fixed expenses
Fixed cash expenses p 700,000
Depreciation expenses_280.QQP Net operating incomeP
120,gpp
The companyg required rate Of return is 8%. Whar is the payback penod fov this project?
a. 3 years
b. 6.67 years
34. Sabang Company purchased a new machine on January I of tnlG year for P 90,000, with an esomated useful life Of 5
years and a salvage value of P 10,000. The machine will be depreciated using the straight-line method. The machine is
expected to produce cash flow from operations, net of tax, of p 36,000 a year in each of the next S years. The new
machine's salvage value is p 20,000 in years t and 2, and P 15,000 in years 3 and 4. What will be the bailout payback
period for this machine?
c a. 1.4 yea c. 1.9 years b. 2.2 years d. 3.4 years
35. Tigaon Co. is considering the purchase of a P 100,000 machine that IS expected to reduce operating cash expenses
by P 25,000 per year. This machine, which has salvage value, has a useful life of 10 years and will be depreciated on
a straight-line basis. What would be the simple rate Of return?

36. San Jose Company is considering the acquisition Of computer that costs P 120,000 With an economic life of
12 years and a terminal salvage value of P 12,000. It is estimated that the increase in net income tkfore taxes as a
result from this investment will amount t. P 7,000 annually. Income taxes are 35%. The company uses the straight-
line method of depreciation. What is the accounting rate of return on the average cost of investment? c a. 3.79%c.
689% b. 5.83% d. 6.98%
37. Lagonoy Inc. purchased a new machine for p 60,000 on January 1. The machine is being depreciated on the straight-
line basis over five years with no salvage value. The simple rate Of return is expected to be 15% on the initial
investment. Assuming a uniform cash flow, tn:s invesrrnen: is expected to provide annual cash now from operations
of:
D a. P 7,200 c. P 12,000 b. p 13,800 d. p 21.0'.)0
38. Carnalig Company has inveÄed in a machine that P 70.000, that has a useful life or seven years, and that has no
%ålvage value at the end of its useful life. If the mach;ne has a payback period Of four years, then the Simple rate of
return on the machine is closest to:
c a. 7.1% 10.1% b. 8.2% d. 39.3%
SOLUTION: Net income: cash now - depreciation: (70,000 4) - 10,000 7,500
39. The payback capital budgeting technique considers•
Cash flows Qver enti,'P life of luneEuesLmpney
No
No
Yes Yes
40. Which of the following methods is a discounted cash flow method for evaluating capital inve<rnent?
a. payback c. PV payback
b. Bail-out payback d. Payback reciprocal
41. A project costing P 28,715 will produce the following cash benefits after taxes:

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MCQs: MAS- 10, 11 & 12

The company's cost of capital one year is IS 0862; for two years is 0.743; for
three years is 0.641. What is the discounted (PV) payback p:nocj?
a. 1.7 years c. 2.3 years
b. 2 years a. 2. ? years

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42. A peq) now is worth more than a peso to be received in the future because of c a. Inflation c. The opportunity
cost of waiting
b. Uncertainty d. Risk
43. Net present value (NPV) is c a. The sum of discounted cash inflows
b. The sum of discounted cash outflows
c. The sum of discounted cash inflows less the sum of the discounted cash outflows
d. The Sum Of discounted cash inflows plus discounted cash octfiows
44. Which capital budgeting method assumes that the funds are reinvested at the company's cost of capital?
a. Payback c. Net present value
b. Accounting ratc Of retum e. Time adjusted rate of return
45. You have been consulted to advise Polangui Corp. on the projected acquisition of another production line costing P 1
million. The line has an expected useful life of five (5) years wfhout any salvage value. The
following additional informabon was made available:
Year Estimated AnnuaLCö5b-LLæ€!
P 600,000 0.91

2 300,000 0.76
200,000 0.63
4 200,000 0.53
Assuming that the cash flow is to be discounted.
your 5 advice is
3.27
a. TOTAL To invest duc to net present value of p
541,280
b. TO invest due to net present value of P 94,000
c. TO inveÄ due to net advantage Of P 500,000
d. TO invest due to net present value of P 635,000
46. Labo Company purchased a machine with an estimated usefu! life Of seven years and no salvage value. The machine is
expected to generate cash flows from operations; net Of income taxes of p 80,000 in each of the seven years. Labo's
expected rate Of return is 12%. Information on present value factors vs as follows:
present value of P 1 at 12% for seven periods: 9.452
Present value of an ordinary annuity or P at for 7 periods: '1.564
Assuming a positive net present value Of P 12,720, what is the cost of the machine?
a. p 240,400 C. P 357,400
b. P 253,120 d. p 377,840

47. An investment opportunity costing P 110,000 is expectcd to yield net cash flows of p 28,000 annually for six years.
The NPV of the investment at a cutoff rate of 12% would be: (Round off PV factors based on three decimal places)
a. (P 5,108) C. P 110,000
b. p 5,108 d. P 115,108
48. The effectiveness of the present value method has been appropriately questioned as a capital expenditure
evaluation technique because:
a. Predicting future cash flows is often difficult ann often associated with uncertainties
b. The average return on investment method is more accurate and useful
c. The payback method is theoretically more reliable
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MCQs: MAS- 10, 11 & 12
d. The computation involves difficult mathematical applications most accountants cannot perform
49. On January 1, a company invested in an asset with a uscful life 01 3 years. The company's expected rate Of return is
10%. The cash flow and present and future value factors for the 3 years are as foliows:
Present value of P 1 10% Future value of P @ 10%
P 8,000 0.91 1.10 2 P 9,000 0.83 1.21
3 p 10,000 0.75 1.33
All cash inflows are assumed to occur at year-end. If the asset generates a positive net present value of P 2,000,
what was the amount of the original investment?
a. P 20,250 c. p 30,991
b. P 22,250d. r 33,991
50. Ignoring taxes, how are the following used in the calculation of the NPV Of a prcposed project?
Depreciation Expense *Iyage-UaJue Qcueqaumn_Expense Sauage_Wue
Include Include Exclude Include
b. Include Exclude d. Exclude Exclude
51. Pilar acquired a machine that has a useful life of 10 years with no salvage value. The incremental annua;
income
before taxes is p 8,500. Income taxes are 25%. The PV Of an annuity Of P 1 for 10 years at is 4.494 The annual
depredation is P 5,000. The NPV is positive P 1,119.25. How much is the amount Of investment?
a. p 30,000C. P 50,000
b. P 40,000 d. p 60,000
52. A decrease in the discount rate:
a. WII! increase present values of future cash flows
b. Is one way to compensate for greater risk in a project
c. Will reduce present values of future cash flows
d. Responses a and b are both correct

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53. The calculation of the NPV of an Inver,trne'lt project requites that the depreciation tax shield be included at: c
a. The amount of the depreciation With no ad.usfrV'--nt
b. The amount of the deprecaation ttme_s one the tax rate
c. The amount of the depreciation times rate.
d. Zero, since depreciation is not relevant 70 the Of net present value
54. A project requires an Investment of p 40,000 and has a net present value of P 10,000. The profitability index is:
a. 0.80
b. 1.25
55. Consider an investment with the following cash fl,3vs:
Year Cash
31,000) I GOO
10.000 0.677
2 20,000
3 to,ooo 0.675
4 0.592 Salvage Value: P 5,000 What is the
profitability ihdex?
B -a. 1.824 1.482 b. 1.284 d. 1.842
56. An investment in a new piece of equipment costing P 50,0dC is expected to yield the following over its 5-year
useful life: Revenues (cash), p 40,000; ooeratlng costs (cash), P 18,000; depreaation, P 10,000. The present value of P
I received annually for 5 years ahd discounted at the cost of capital is 4.10 assuming that all cash flows occur at year-
end. Ignoring tax is the benefit/cost ratio .:profitability Index) for this piece of equipment?
c a. 0.984 c 1.8M b. 1.200 d. 2.200
57. Which of these methods measure cash flows and of d prcject as if they occurred at a singlc point in time? c a. Payback
and bail-out payback period c. Net present value and internal rate of return
b. Accounting and internal rate Of return d. Return on Qnginal and average investment
58. The present value and discounted cash now rate of return methods of evaluating capital expenditure proposals are
superior to the payback method in that they:
a. Are easier to Implement
b. Consider the time value of money
c. Requires less input
d. Reflects the effects or depreciation and income tax

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59. The internal rate of return (IRR) is the
a. Hurdle rate
b. Rate of interest at which the net present vaiue is g:eater than
c. Rate of return generated from the operational cash flows
d. Rate of interest at which the net present value is equat zero
60. The discount rate that equates the PV of expected cash flows with the cost of investments is the
a. Net present value c. Accounting rate Of return
b. Internal rate of return d. Payback period
61. Which Of the following is a basic difference between ERR and APR criteria for evaluating investments?
a. IRR emphasizes expenses; ARR emphasecs expenditures
b. IRR emphasizes revenues; ARR emphaswee» receipts
c. IRR is used for internal investments; A RR is used for external invectments
d. IRR concentrates on receipts & payments; ARR concentrates on revenues & expenses.
62. Virac, Inc. is planning to invest P 120,000 in a 10 year projed. Virac estimates that the annual cash inflow, net of
income taxes, from this pr0Ject will be P 20,000 Vi'ac'!. desired tate for retum on investments of this type is 10%.

Information on present value factors is as follows:

Present value of P 1 ror 10 periods 0.386 0.322 present value of an
annu:ty of P I for 10 per.0dG 6.145 5.650 What is Vlrac's intemal rate of return on this
investment?
a. Less than 10%, but more than 0% c. Less than 12%, but more than 10%
b. 10%
63. Bula Corporation is planning to invest P 80,000 in a three-year projecL Eula's expected rate Of return is 10%. The
present value of PI at 10% for 1 year 0.909, for two year; (:.82C and for the three years is 0.751. The cash flows, net
of income taxes, will be p 30,000 for the (present value: and P 36,000 for the second year (present value: P 29,736).
Assuming the or is exact%' 10%, what will be the net cash now, net of income taxes, for the third year?
a. P 17,260c. 22,904
b. p 22,000
64. Libon Company is planning to inveSt in a machine with a useful iife of five years and no salvage value. The machine
is expected to produce cash flow from operations of P 20,000 in oar-h cf the five years. Libon's required rate of
return is 10%. What would be the maximum price that the company would pay for the
machine? c a. p 32,220 P 75, 820
b. P 62,100

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65. A company is considering a capital investment Ior which the initial cash outlay is P 20,000. Net cash flows from
operations, net of income taxes, are precft:ted to be P 4,000 for 10 years. Assume a cost of capital of 12%. The
present value Of an annuity Of P I for 10 years at various rates are as follows:

What is the companvs internal rate or return?

a. 15.1% c. 15.3%
b. 15.2% d. 15.4%
66. If an investment Of p 14,760 now is to yield P 18,000 at the end of one year, then what is the internal rate of return
for this investment to the nearest whole percentage? c c. 22%
b. 18%
67. The payback reciprocal can be used to approximate a pr0Ject's
a. Profitability index

b. Net present value

c. Accounting ratc Of return if the cash flow pattern is relatively stable
d. Internal ratc of return if the cash flow patter is relativciy stable
68. If a company has computed the profitability index of rwestmeo! project as 1. IS, then;
B a. The project's internal rate of return less than the discount rate
b. The pr0Ject's internal rate of return is greater than thc discount rate
c. The project's internal rate of return is equal to the discount ri•tc_•
d. The relationship of rate of return and discour,t rate 15 impossible to determine from the data given
69. If an investment project has a profitability index of 1.15, the
a. Pmject's internal rate of return is 15%
b. Project's cost of capital is greater than Its internal rate or return
c. Project's internal rate of return exceeds Its net present value
d. Net present value of the project IS positive
70. Labo co. uses a 12% hurdle rate for all capital expenditures. It has lined up four projects:
In Thousand Pesas

—?Qject 1 Prgest_2_
_ftoject 3 fge-gt.f_

Initial cash outflow400 506 496

Annual net cash inflows

Year 1 130 200 160 190

Year 2 140 270 190 250
Year 3 160 180 180 180
Year 4 go 130 160 160
Net present value (7,596) 8,552 28,128 29,324
Profitability index (%) 98% 101% 106% 105%
Internal rate of return 13% 15%
If the company has no budgetary Imitations, which projects shout! be pursued? a.
Projects 3 and 4 Projects 2, 3 and •1
b. Project 4 d. Al! the lour proJects
71. Del Gallego Company is considering several investment proposals, as shown below:
D
Investment required 90,000 110,000 80,000 140,000 Present value of future cash inflows
165,000 120,000 100,000 170,000 Using the profitability index, what would be the ranking?

72. Sta. Elena Co. is considering two projeds, A and B. The fo'lovnng Informatton has been gathered on these projects.

Page 10 Of 37 pages
 MAS Module 4
MAS 10, 11 & 12
Project A Project B
Initial investment needed P 40.000 P
60,000
Present value Of future cash flows 60,000 85,000
Useful life 4 years
Based this information, which Of the following statements IS (are) true?
I. Project A has the higher ranking according to the profitability index critenon.
Il. Project B has the higher ranking according to the net present value cnterion.

a. only I c. 30th I and II

b. only 11 d. Neithe,• I nor Il
73, The NPV and IRR methods give
a. The same dedsion (i.e., accept or reject) for any single Investment project
b. The choice from among mutualiy eyclusive investments
c. The rankings of projects With unequal Ives
d. The same rankings of projects with different required invegments

Rosa - 7b MAS Module 4

MCQs: MAS-
74. Milaor Corporation is contemplating four projects, M, N, ardO The capital costs for the Initiation Of each project
and Its estimated after-tax, net cash flows are listed
belcn• The cnrapany's desired after- tax opportunity
costs is 12%. It has P 900,000 capital budget for the year,
funds cannot br reinvested at greater than 12%.

Initial cash outflow

Annual net cash inflows:
Year 1 113 90 80
Year 2 113 170 ! 10 100
Year 3 113 150 130 120
Year 4 113 110 140 130
Year 5 113 100 150 150
Net present value p 7,540 P 54,666 (P
15,708)
Profitability index 1.02 1.14 0.96
Internal rate of return 12.7% 17.2% 10.6%
The company will choose:
a. Projects, M, N, and O c. Projects L and N
b. ProJects M and N d. Pr0Ject.3 L and M

75. If the present value of the future cash flows for an Investment equals the required investment, the IRR is
a. Equal to zero c. Equal cost of borrowed capital
b. Equal to cutoff rate d. Lower than the cutoff rate of return
76. A profitability index greater than one for a project indicates that:
a. The discount rate is less than the internal 1 ate of return
b. There has been a calculation error
c. The project is unattractive and should not be pursued
d. The Company should reevaluate Its Of (2 Pita;
77. Which is a basc difference between the IRR and book rate of return ( 3RR) Criteria for evaluating investments?
D IRR emphasizes expenses and BRR err,pnesipes
b. IRR emphasizes revenues and BF,R rccmpi•:,
c. IRR is used for internal investments and BRR is used for external investments
d. IRR concentrates on receipts and expenditures and concentrates on revenues and expenses
78. If the IRR on an investment IS zero,

Page 11 of 37 pages
 10, 11 & 12
a. Its NPV is positive
b. It is generally a wise investment
c. Its cash flows decrease over its life
d. Its annual cash flows equal its required Investment
79. If applied in capital budgeting evaluation, T.nsitivity ana;ysis
a. Is used extensively' when cash rows are with certainty.
b. Is a "what if" technique that asks how a g:ver, outcome wit: '-hange if the original estimates of the capital
budgeting model are changed
c. Measures the amount of time it will take for d project to recover its initial capital outflow.
d. Is a techntque used to rank various capitai prcJe<s
80. The relationship between payback per10d and IRR is that
a. A payt*'ck period of less than one-half the life of a project will peld an IRR lower than the target rate
b. The payback period is the present value factor for the IRR
c. A project whose payback pericd does noi meet the company's cutoff rate for payback will not meet
the company's
Life of the Investment S criterion for IRR
years d. Both
Required rate of return 10% methods are discounted
81. The payback period for the investment is closest to: techniques
a. 8.00 years c. 4.75 years
Isarogb.Company
1.42 yearshas gathered the rollcwing.data OF a d. 0.21 years
82. The simple rate of return on the investment is closest to: Inves%lient project:
Investment required equipment p
142,500 Annual cash inflows
30,000
a. 8.55%
b. 10.00%
83. The net present value on this investment closest to
D a. p 300,000 p 58,800 b. P76,024 d. p i7,55G
84. The internal rate of return on the investment is closest to:
a. 13%
b. 15% d.

Of P.S

MCQs:

MAS - 11: WORKING CAPITAL MANAGEMENT (ILO

Net working capital is the difference between
a. Total assets and total liabilities c. ftsed assets and current liabilities
b. Current assets and current liabilities d. Sharehoiders• investment and cash
2. If Current assets go up by P 120,000, current liabilities go down by p 50,000, then net-working capital q a.
Did not change by P 170,000
b. by P 70,000 d. Decreased by P 170,000
3. Which of the following is strictly nota use Of worktng capital?
a. Rcpurchase of common stock c. Purchase of equipment on account
b. Purchase of inventory on account
4. The net working capital of Philippines Company at December 31, 2018
was Selected information for the year 2019 for Philippines Company is
as follows:
Working capital provided
from
Capital expenditures
Proceeds from short-term borrowings
proceeds from long-term borrowings
Payments on short-term barrowings 500, coo
Payments on long•term 600,000
Proceeds from issuance Of common stock
Page 12 vages
 MAS Module 4
MAS 10, 11 & 12
Dividends paid on common stock 800,000
What is the net working capital at December 31, 2019?

5. China Corporation had income before taxes of P 60,000 for year. Included In this amount was depreciation of P
5,000, a charge Of P 6,000 for the amortization of bond discounts, and P 4,000 for interest expense. What is the
estimated cash flow for the period?
a. p 49,000 c. p 66.000
b. p 60,000 d. p 71.000
6. USA Co. has an acid test ratio of 1.5 to 1.0_ Which of the following vall cause this ratio to deteriorate?
a. Payment of cash dividends prcviougy declared
b. Borrow. ng short-term Joan from a bank
c. Sale of inventory on account
d. Sale of equipment at a loss
7. It is the policy of a company that the current ratio cannot fall below 1.5 to 1.0. Its current liabilities are P 400,000 and
the present current ratio is 2 to 1. How much is the maximum level Of new short-term loans it can secure without
violating the policy?
a. PAOO,OOO c. P 266.667
b. P 300,000 d. P goo,oco

8. A firm's current ratio is currently 2.2 to 1. Management knows it cannot violate a working capital restriction contained
tn its bond indenture. If the firm's current ratio falls 2 to L, technically it will have defaulted. If current liabilities are P
what is the maximum new commercial paper that can be issued to finance inventor/ expansion?
a. p 20 million c. p 180 million

b. P 40 million d. P 240 million

9. Which oneof the following transactions would increase the current ratio and decrease net profit?
D a. An income tax payment due from the prevlous year is paid
b. A stock dividend is declared
c. Uncollectible accounts receivable arc written off against the allowance account
d. Vacant 'and sold for less than the net book vaiue
10. Which of the following transactions does not change the current ratio and total current assets?
a. A cash advance is made to a divisional office
b. A cash dividend is declared
c. Short-term notes payable are retired with cash
d. A fully depreciated asset is sold for cash
Australia has 100,000 shares Of stock outstanding. Below is part Of Austral'* Statement of Finanr+ Position
for the last fiscal year.
Statement of financial Position as Of December 31 Selected items
Cash P 455,000
Accounts receivable 900,000
Inventory 550,000
Prepaid assets 45,000
Accrued liabilities 285,000
Accounts payable 550,000
Current gxytion, long-term notes payable 65,000
What is the maximum amount Australia can pay in cash dividends per share and maintain current ratio of 2 to Assume
that all accounts other than cash remain unchanged.
a. P 2.05 c. p 3.35
b. p 2.50 d. p 3.80

Page 13 of 37 pages
 MAS Module 4
MAS 10, 11 & 12

MCQs:
12. AS a Company becomes more conservatwein working capita: policy, it would tend to have a (an)
a. Decrease in acid test ratto
b. Increase In the ratio of current liabilities to non-current liabilities
c. Increase in the ratio of current assets to unts of output
d. Increase in funds invested in common stock and a funds invested in securities 13. The firm's
financing requirement can be separated into
a. Seasonal and permanent c. Carrent liabilities and long-term funds
b. Current assets and fixed assets d Cur: enl and long-term debts
15. The working capltal financing policy that subjet_ts firm te the greatest risk Of being unable to meet the firm's
maturing obligations IS the policy that finances (where: CA current ?.ssets)
a. Temporary CA with long-term debts c. permanent CA with long-term debts
b. Fluctuating CA with short-term debts permanent CA •Mth short-term debts
16. Which Of the following actions would not be consistent with good working capital management?
B a. Increased synchronization of cash flows
b. Minimize the use Of •float
c. Maintaining an average cash bdlancc equai to which m±nimizes total cost
d. Use of checks and drafts in dtsbcrsing fuads
16. Determining the appropriate ievel Of working r.apitöl for firm requ'res
D a. Evaluating the risks associated w±th vannu3 izv±. of fixed assets and the of debt used to finance these assets
b. Changing the capital structure and dividend po:icy the firm
c. Maintaining short-term debt at the (Gwest bæause it is generally more expensive than long-term debt
d. Offsetting the benefit of current assets and currem liabilities agains: the probability Of technical insolvency
17. A compensating balance
a. Compensates a financial institution for' services rendered by pr..-.vdinq wth fund deposits
b. Is used to compensate for possible or, a marketai.ln securities portfolio
c. Is a lcvcl of inventory held to compensate for variations usag€. rate and leed time
d. Is the amount of prepaid interest on a loan
18. The most direct way to prepare a cash budget 'hanufactunng is to include
a. Projected sales, credit terms, and net inconc
b. projected net income, depreciation and goodwii! amort:zation
c. Projected purchases, rx?rcentages of purchases paid, net income
d. ProJected sales and purchases, percentages of collections, and terms of paymcnts
19. Shown below is a forecast of sales for Europe Enc. {07 the first four months of the year (all amounts are in thousands
Of pesos).

Cash sales 14
Sales on credit
On average, 50% of credit sales are paid for in the month following the sale, and the remainder is paid 2 months
after the month of As;utninG there are no bad debts, what is the expected cash inflow for Europe in March?
a. P 138,000
b. P 122,000 d. P ros,ooo
20. Asia Inc. has a pool of cash that it uses to pay blils. When the cash is exhausted, it replenishes its pool by selling T-
bills. The firm disburses P 600,000 in cash every year, and every sale of costs p 60. The current risk-free rate is
What is the optimal cash balance for Asia?
a. P 27,932 c. p 30,000
b. p 48,530
21. A firm needs a total of P in new cash for transaction .'G:voses. The annual interest rate on marketable securities is
10% and the brokerage fee cf seling secunties to replenish cash is P 1,000. Which Of the following is closest to the
finn's optt:nai cash balance'
B a. P 353,432 P 774,597
b. p 387,298
22. Africa, Inc. has P 2 million invested in T-bills yle:ding 8% per annum. l'h15 investment will satisfy the firmß need
for funds during the coming year. It costs P 50 to sell these Jf Africa nceds p 166,667 a month, how frequently
should the company sell off T-bllls?

Page 14 of 37 pages
 MAS Module 4
MAS 10, 11 & 12
B a. About eve.•y 3 days c. Abcut every 15 days b. About every 9 days d. About. Ewer-y I
e days
23. A firm has an average age in inventory Of days, an average co;lecttor. penod of 45 days, and an average payment period
of 30 days. What is the number of days in the go days ash cycle?
D a. 135 days b. 105 days
24. The company's cash flow cycle extends up to .iay5. age For PO days. Average age in inventory is
twice as long as days' receivable. For how long 's pm•able deferral pcrtod?
c. days
a. 10 days
b. 20 days d. 15 days

Resa-
MCQs:
25. Assume that each day a company writes and receives checks totaling p 10,000. If it takes 5 days for thc checks to
dear and bc deducted from the company's account, and only 4 days for the deposits to clear, what ts the float? c a. (P
10,000) C. P 10,000
d. p 50,000
26. Arctic is a retail mail order firm that currently uses a central collection system. An average Of 6 days IS required for
mailed checks to be received, 3 days for Arctic to process them, and 2 days for the checks to clear through its bank.
A proposed rockbox system would reduce the mailing and processinq time to 2 days and the time to day.
Arctic has an average daily collection of 150,000. If Arctic adopts the lockbox system, its average cash balance will
increase by

b. P 750,000 d. p 450,000
27. Amenca Company is considering implementing a lockbox systern at a cost of P 20,000 per Quarter. Annual sales are
P and the lockbox System will reduce collectlon time by 3 days. If America can invest funds at 8%,
should it implement lockbox system? (Assume a 360-day year)
a. Yes, savings of P 140,000 per year L. No, loss of p 20,000 per year
b. Yes, savings of P 60,000 per year d. No, ioss of p 60,000 per year
28. A firm has dally cash receipts of P 100,000 and collection time of 2 days. A bank has offered to reduce the
collection time on the lirm•s deposit by 2 days for a monthly fee ot P 500. If money market rates are expected to
average 6% during the year, the net annual benefit (loss) from n,'vtng this service IS c a. P O C. P 6,000
b. P 3,000 d. P 12,000
29. Peru Company is a newly established janltorial firm and the owner is deciding what type Of checking account to
open. Peru is planning to keep a P 500 minimum balance in the account for emergencies and plans to write roughly
80 checks per month. The bank charges p 10 per month and P 0.10 check charge for a standard business checking
•account with no minimum balance. Peru also has the option of a premium business balance that requires a P 2,500
minimum balance but has no monthly fees or per check charges. If Peru's cost of funds is 10%, which account
should Peru choose?
a. Standard account, because the savings is P 34 pet year
b. Premium account, because the savings is P 34 per year
c. Standard account, because the savings is P 16 per year
d. Premium account, the savings is P 16 | ver yedr
30. When managing cash and short-term investments, a corp. •rate treasurer is primarily concerned with
a. Maximizing rate of return
b. Minimizing taxes
c. Investing in treasury bonds since thev have no default ri',l:
d. Liquidity and safety
31. China Inc. has a maprity of its customers located in Metro Mani'a. Tibetan, a maJor retail bank, has agreed to
provide a lockbox system to China at a fixed fec of P 50,000 per year and a variable fee of PO.50 for each payment
processed by thc bank. On average, China receives SO payments per day, each averaging p 20,000. WIth the
lockbox System, the company's collection float will decrease by 2 days. •The annual interest rate on money market
securities is 6%. If China makes use of the lockbox System, what would be the net tmefit to the company? (Use
365 days per year) c a. p 50,000 C. P 60,875
b. P 59,125
SO_UUQN: Benefit: (P 20,000 x 50 payments per day) x 2 days x 6% P 120,000
Costs: P 50,000 + (50 payments per day x 365 days x P 0.50) = P 59,125
32. The average collection period for a firm measures the number of days
a. After a typical credit sale IS made until the firm receives the payment
b. For a typical check to •clear' through the banking system
Beyond the end of the credit penod before a typical customer payment is received

Page 15 of 37 pages
 MAS Module 4
MAS 10, 11 & 12
d. Before a typical account becomes delinquent
33. Russia, Inc. sells with terms 3/10, net 30 days. Gross sales ror the year are p and the department
estimates that 30% of the Customers pay on the tenth day and take discounts; •10% pay on thirtieth day; and the
remaining 30% pay, on the average, 40 days after the purchase. Assuming 360 days year, what is the average
collection period?
a. 40 days c. 20 days
b. 27 days d. 15 days
34. England Company has an inventory conversion period of GO days, a receivable conversion of 35 days,
permanent cycle of 26 days. If its sales for the period just ended amounted to P 972,000, what is investme.:t
accounts receivable? (Assume 360 days in a year)
a. P 72,450 c. P 85,200
b. p 79,600 d. P 94,500
35. Italy sells to retail stores on credit terms of 2/10, n/30. Daily' sales average 150 units at a price of P 300 each.
Assuming that all sales are on Credit and 60% of its customers take the discount and pay on day 10 while the req of
the customers pay on day 30, what is the amount of Italy's accounts receivable?
c. P ODC„OOO
b. P 990,000

Rosa -
MCQs: -
36. Mexico Company has the opportunity to incccase sales b'/ P I mii!lon ty selling to ret/ richer customers. It has IR-en
estimated that uncollect'hle eypenses be and collection costs, 5%. The and Other selling costs are 70% Of sales and
corporate tax rate 35%. they pursue this opportunity, what be the after-tax profit?

c a. Increase by P 35,000 c. inc.-ease by P 65,000

b. Increase by P 97,500 Rema.n the e.zrne
37. A company's budgeted sales for the coming year arz_ P 96 mi%ion, of which are expected to be crgåt sales tennS
Of n/30. The company estimates that a prcnoseC
reidxahon of credit standards would a 360-day tncrea% sag by
30% and increase the average collectlon
004±00 fron. 30 te year, the
relaxation Of credit standards would resur te an
changes:

38. Singapore to total plans to

tighten Its credit

Average number Of days

Ratio of credit sales
Projected sales for the coming year are P •JO millton ard it is est:m3ted that the company's credit zles to be S% less if
the new policy is implemented. Assuming a 360•day year, what is the effect of the nevi on accounts receivable?

a. P decrease C. p 6,500.000 decrease

b. p decrease increase
39. Iran Computers believes that is collection costs could bc modification of coned_ion proc€ures. This action is
expected to result in a lengthening oi average c.r$eæ•on penod from 23 days to 34 days; however, there will be no
change in The budgeted credit sales for the coming year are P 27,000,000, and short-term in:erest 't.•'cs are e.'.r.•ctetj
to average 8%. To make the changes in collection procedures cost beneficial, what be the mintmarn in collection
costs (using a 360-day year) for the coming year?
a. P 30,000 C. P 180,000
b. p 36,000 du P 360.000
40. A company with P 4.8 million in Credit sales per year plans to re'ex its credit standards, projeäng that this
increase credit sales by P 720,000. The company's ave' age cobeceon pernd for new customers is expected to be 75
days, and the payment behavior oi the exist.r.g customers is not expected to change. Variable costs are sales.
The firm's opportunity cost is before taxes. 360-day year. what is the cornpanfs (loss) on the planned change
in credit terms?
a. PO
b. p 28,800
41. A computerized inventory system that simulatCG nceded for the finished product, and then production
need to available inventory balance to determine when orders should be placed.
a. EOQ system -Time system c.
b. Electronic Data Interchanged. Matcnel Requirements Planning System
42. The economic order quantity formula indicates that
 MAS Module 4
MAS 10, 11 & 12
a. Annual quantity of inventory to be carried
b. Annual usage of materia;s during the year
c. Safety stock plus estimated inv2ntor,' for the year
d. Quantity of each 2nd tvldual order auring year
43. An example of carrying cost is:
a. Disruption of productJon schedules c. cods
b. Quantity discount lost d. Gx.ilage
44. The ordering costs assxiated with inventory management
a. Insurance costs, purchasing costs, Shippinq c.ostS, and spoilage
b. Obsolescence, setup costs, quantity discounts lost, and storage ccsts
c. Purchasing costs, shipp!ng costs, Setup costs, and quaråity discounts lost
d. Shipping costs, obsolescence, setup costs, and capital invested
45. India operates a chain of hardware Stores across controller wants to determine the optimum safety <ock levels for an air
pGrifier unit. The inventory manage' rotapt,'ed foiiewtng data:
• The annual carrytng cost or inventory of ry.: Investment in inventory. The inventory investment per
unit averages P SO.
• The stock-out cost is estimated to be P 5 per t h*it.
• The company orders inventory Or: the averagr of limes per year.
• The probabilities Of a stock-out per order cyc,le nth ieveis of safety stock are as follows:

200 units 0%
100 units 100 units
100 units
200 units
What is the total cost of safety stock on an annual basis With a S?fety scock level Of 100 untts?
a. P 550
b. P 1,750 6. P 2,Cöü

Pag%• 12 or 26

Page 17 of 37 pages
 MAS Module 4
MAS 10, 11 & 12

MCQs:
46. The amount of inventory that a company would tend to hold in stock would increase as the
a. Variability of sales decreases
b. Cost of carrying inventory decreases
c. Cost Of running out of stock decreases
d. Sales level fails to a permanently lower level
47. -In inventory management, the safety stock will tend to increase if the c a. Carrying cost Increases c.
Variability of the lead time increases
b. Cost of running out Of stock decreases d. Variability of the usage rate decreases
48. Based on a 360-day year, what is the current price of P 100 Treasury bill in 180 days on a 6% discount basis?
B a. P 100.00c. P 94.00 b. P97.oo d. p 93.00
49. Commercial paper c a. Has a maturity date
greater than year
b. Is usually sold only through investment banking dealers
c. Ordinanly does not have an active secondary malket
d. Has an interest ratc lower t! lan Treasury bills
The forms of short-term borrowing that are unsecured credit are
D a. Floating lien, revolving credit, chattel mortgage, and commercial paper
b. Factoring, chattel mortgage, bankers' acceptances, and line of credit
c. Floating lien, chattel mortgage, bankers' acceptances, and line of credit
d. Revolving credit, bankers' acceptances, hne of credit, and commercial paper
51. A firm Often factors its accounts receivable. its finance Company requires a 6% reserve and charges a 1.4%
commission on the amount of the receivables. The remaining amount to be advanced is further reduced by an annual
interest charge Of 15%. What proceeds will the firm receive from the finance Company at the time a p 100,000
account due in 60 days is factored?
a. P 85,000 c. P 92,600

b. p 90,285 d P 96,135
52. Greece, Inc. plans to factor its receivable and has callected data on the following finance companies:
Required reserve±Annual interest charae
Company A. 6%15% Company B12%
Company C 5% .1.7%
20%
Company D 8% 1.0% 5%
Which company will give Greece the highest proceeds from a P 100,000 account due in 60 days?
a. Company A c. Company C
b. Company B d. Company D
53. A company enters into an agreement with a firm that wig factor the company's accounts receivable. The factor agrees
to buy the receivables, which average P 100,00C pcr month and have an average collection period of 30 days. The
factor will advance up to 80% of the face value the receivab!es at an annual rate Of 10% and charge a fee of 2% on all
receivables purchased. The company control!er estimates that the company would save P 18,000 in collection
expenses over the year. Fees and interest are not deducted in advance. Based on a 360-day year, what is the annual
cost of financing?
a. 10.0% c. 14.0%
b. 12.0% d. 17.5%
54. Sweden Company, a retail store, is considering foregoing sales discounts in order to delay using its cash.
Supplit•,credit terms are 2/10, n/30. Assuming a 360•day year, what IS the annual cut of credit if the cash discount is
ont taken and Sweden pays net 30?
a. 24.0% .c. 36.0%
b. 24.5% d. 36.7%
55. Norway buys on terms Of 2/10, net/30, but generaliy does not pay •untii 40 days after the invoice date. purchases
total P 1,080,000 per year. How much non-free trade credit does the firm use each year?
a. p 120,000 c. p 60,000
b. p 90,000 d. P 30,000

Page 18 vages
 MAS Module 4
-10, 11 & 12
56. Finland plans to acquire an equipment costing P A bank loan can finance the acquisition dig:ounted interest.
40,Compar»,'
Alternatively, the company may delay payment to its suppliers. Presently, under terms of 2/10, netthe but it believes
payment could be delayed 30 additional days, without payment could be made in 70 days). What should the Company
do?
a. Borrow since it is cheaper by 1.13% than delaying payment to suppliers.

b. Borrow since it is Cheaper by 2.5% than delaying paymert. to suppiiers.

c. Delay payments to suppliers since it woütd cost ogænst bank loan of 10%.
d. Delay payments to suppliers since It does not anvthir,g,
57. Romania bank requires a compensating balance of on a P 100,000 loan. If the stated interest the loan is
7%, what is the effective cost of the loan?
a. 5.83% c 8.40%
b. 7.00% d. 8.75%
58. Belgium Company got a recent quote on a commercial bank loan Of 16% discounted rate with a 20% compensatin;
balance. The term Of the loan is one year. What is the effective cost of borrowing?
a. 19.05% c. 22.85%
b. 20.00% d. 25.00%

Of 25
MCQs:

59. A bank loans P to Ireland for days, With interc'z! o' P 60.000 to be paid. The bank alØ requires a P
200,000 compensating balance for the loan pertod What is the effectgvc annual ratc?
16.22% c. 14.00%
b. 15.00% d. 17.00%
Assume that a bank has lent a firm a P 200.000 fcr 60 dag• at interest. The loan is discounted, and the bank requires a
20% balance. What [he effective annual rate?
14.60%10.17%
b. 12.76% d: 10 00%
61. The Brunei Cou•peet Bank and Lugina Corp. signed a loan agreement subject to the following terms:
Stated interest rate Of 18% on one-year loan
15% compensating non-interest beann,l account ba'ance to be maintained by Lugina with Brunei Cou-peet
Bank. The net proceeds Of the loan totaled P What the principal amount of the loan?

b. p 1,219.512
62. Chile Co. obtained a short-term bank loan for P at an "tr.u,-tl interest of 6%. Under the loan, the company is
required to maintain a compensating balance P 50,000 'n its savings account that earns interest at an annual rate of
2%. The company would otherwise maintain P 25,050 in the savings account for transaction purposes.
What is the effective interest rate of the loan'
a. 5.80% C. 6.66%
b. 6.44% d. 7.00%
63. A company has accounts payable of P S million wet, terms of 2% digcount within 15 days, net 30 days (2/15, n/30).
It can borrow funds from a bank at ao unnua! rate ot 17% Or it Cin wait unbl the 30th day when it will receive
revenues to cover the payment. If it borrows funds or, the last aay of the discount period in order to obtain the
discount, what will be Its total cost?
c a. p 24,500 more c. 75,SOC icss
b. P 51,000 less Z. less
64. Brazil Co. can issue 3-month commercial paper iar_c value of P for P 980,000. The costs would be P 1,200.
What would be the annualized percentage COSt Of financing?
a. 2.17% c. 8.48%
b. 8.00% d. 3.50%
65. A company had P 500,000 of sales for the year just ended and i; projecting sales of p 600,000 for the coming year.
For every P 1 increase in sales, 38% of additlnna: is required for the purchase of additional assets. The projected
profit margin 20%, and 60% of prof.t-- will rc%mnryd $.05 in the company. What is the amount Of additional
external financing needed by convany coming year?
a. PO c. ? G6,GüO

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 MAS Module 4
MAS 10, 11 & 12
b. P 38,000
66. Given the following items that vary directly with sales f'.)l the year 20!8:
Assets: 65%
Liabilities: 20%
Net profit margin is expected to be 12% and while payout ratio is constant at 60%.
If sales are expected to increase by 25% in 2019, how much is the additional financing needed?
3 a. P 225.000 c.. P 4'i,coo
b. P 105,000 d. Sornc other amount
67. For a firm with a degree Of operating leverage Of 3.5, an increase in Of 6% will
a. Increase pre-tax profits by 3.5% Dre•tax profits by 21%
b. Decrease pre•tax profits by 3.5% i}. p.e•tax orcfits by 1.71%
68. Securing of funds for investment at a fixed rate of t,üurn ta fund suppl;ers, to enhance the well being Of the common
stockholders is known as:
a. financial leverage c.
bu•rowing
b. Fund management d. Financial arbitrage
69. In 2019, Thailand Corporation increased earnings before interest and taxes by 17%. During the same period, net income
after tax increased by 42%. What is the degree or financial leverage ror 2019?
a. 1.70 b. 1.78
d
b. 4.20 d. 5.90
.
Vatican Company currently sells 400,000 bottles of perfume cach vear for p
1.00. Fixed costs are P 28,000 per "car. The firm has dividends Of p 1
2,000 per year, and a 40% tax rate. .
70. What is the degree of operating leverage fnr Vötltar, Company? 2
c. : .35
b. 1.78 u. 1.2 71. What is the degree of financial
leverage for Vatican Company?

Of 26
Each bottle costs P 0.84 to produce and sells
interest expense of P 6,000, preferred stock
ROS6c- ae
MCQs: MAS
72. Vatican Company did not have preferred stock, the degree of total leverage would
a. Decrease tn proportion to a decrease in financial
b. Increase In proportion to an Increase In financial leverage
c. Remain the same d- Decrease but not be proportional to the dectease in financial leverage
73. A company has unit Of 300,000, unit varmh'c Cost Of P 1.50, unit price Of P 2.00 and annual fixed costs Of P
50,000. Furthermore, the annual Interest expense is P 20.000, and the company has no preferred Mock.
Accordingly, what is the degree Of combined lwcrage?
1.875 c. 1.25
b. 1.50 1.20
74. The theory underlying the Cost of capital primarily concerned the cost of
a. Long-term funds and Old funds c. long•tetin funds and new funds
b. Short-term funds and new (undea d. Short-term (unds and Old funds

75. If bonds are currently yielding 8% an the marketplace, why is the firm's cost debt lower?
a. Market Interest rates have increased
b. Additional debt can be Issued more cheaply than the orginal debt
c. There should be no difference; cost of debt is thc sarnc a; the bonds' market yield
d. Interest deductible for tax purposes
76. Malaysia Company's 10% preferred stock that has par value ef P per share is sold for P 101, gross Of undemriting
fees Of P 5 share. If the tax ratc is 40%, what as the cost of funds for preferred stock?
D a. 4.2% 10.0% b. 6.2% d. 10.4%
77. The term "underwriting spread" refers to the c a. Commission percentage an investment banker recewes for
underwriting a security issue
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 MAS Module 4
-10, 11 & 12
b. Discount investment bankers receive on securitJcs they from the Issuing company
c. Difference between the pnce the Inve<ment banker pays for a new security Issue and the price at which the
securities are resold
d. Commission a broker receives for either buying or selling a security on behalf of an investor.
78. Taiwan Corporation IS prepanng to Issue preferred stock. The preferred steck will have a P 100 par value and
will pay P 8 per year in dividends. Flotation costs for the new issue vall p 2.38 per share. Taiwan's marginal tax
rate is 34%. The issue price is expected to be P 96.50 per share. Based on this information, what is Taiwan
Corporat'0n 's Cost of preferred stock?
B a. 5.3%
d. 8.0%
79. The 3 elements needed to estmate cost of equity In determining a firm's weighted average cost of capital are Current
drvidends per share, expected growth rate in dividends per share, and Current book value per share Of common stock b.
Expected eamings per share, expected growth rate in dividends per share, and current market price per share of common
stock
C. Current earnings per share, expected growth rate in earnings per share, and current book value per share Of
common stock
d. Expected dividends per share, expected grovRh ratc in dividends per share, the current market price per share
of common stock
80. The investment-banking firm of Syria & Associates will us'J a dividend valuation model to appraise the shares of ete
Lebanon Corporatton. Dividends at the end the carrent year be P 1.20. The growth rate (g) is 9% the rate (K) is
13%. What should be the price of the stcx.i: the public? c a. p 28.75 c. P 30.OC b. P 29.00 d. P 31.50
81. Ceteris paribus, the market value Of a firm's outstanding common shores will be higher if
a. Investors have a lower required return on equity
b. Investors expect lower dividend growth
c. Investors have longer expected holdinq periods
d. Investors have shorter expected holding penods
82. France Co. paid cash dividends to its Common stockholders over the past 12 months at p 2.20 per share. current
market value Of the common stocks is P 40 per snare, and investors are anticipating the Common divi.!€'" to grow at a
rate of 6% annually. The cost to issue new common stocks will bc 5% of thc market value. WEY be the cost of the new
common stock issue?
a. 11.50% c. 11.83%
b. 11.79% d. 12.14%
83. It is generally more expensive for a company to finance with equity capital than with debt capital because
a. Long-term bonds have a maturity date and must therefore repaid in the future
b. Investors are exposed to greater risk with equity apita\
c. Equity capital is in greater demand than debt capital
d. Dividends fluctuate to a greater extent than interest rates
84. When calculating the cost of capital, what should be 'hr cost ass'gned to retained earnings?
a. Zero
b. Lower than the cost of external common equity
c. Equal to the cost of externa: common equity
d. Higher than the cost of external common equity

0!

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 MAS Module 4
-10, 11 & 12
Resa- ne
MCQs: MAS -

The England Corporatlon is prepanng to evaluate capital expcndift.•rr- prc,oosals for the conung year. Because the firm
employs discounted cash now methods, the cost of captai for the tr.u5t be eÄimated. The following info?mabon for
England Corporation is provided:
a. The market price of common stock ig 50 %bare.
b. The dividend next year is expected be 3 Sharm C. growth in dividends e
i 0%:".
d. New bonds can bc issued at face value coupon rate.
-e. The current capital structure of '*00/0 Icilg-term debt and 60% equity considered to be optimal.
f. Anticipated earnings to be retained in the coming year are. P 3 million
g. The firm has a •10% marginal tax rate.
85. What is the after-tax cost of the new bond issue?

86. What is the cost of using retained earn•nqs for financing?

87. If the company must assume a 20% notation cost Gn stock guartcer„ what is the cost of new common
stock?
D a. 6.25%
d. 16.25%
88. What is the maximum capital expansion that can be supponed ir the coming year WJthout resorting to external equity
financing?
c a. p 2 million c. P 5 million
b. P 3 million d. Cénnc'. be determined from information given
89. Assume that the after-tax cost of debt financing 10%. the re:aincd earnings is 14%, and the cost Of new common stock
is 16%. If capital expansion aeeds to bz p 7 for the corning year, what is the after-tax weighted-average cost of capital?
a. 11.14% 13.60%
b. 12.74% G. 26.00%
90. Assume that the after-tax cost Of debt financing •0%, the "_tained earnings is 14%, and the cost of new common stock
is 16%. What IS the margtna! cost capita! projected capital expansion in P 7 million?
a. 10.00% c. 13.60%
b. 12.74%
91. Using the Capital Asset Pnclng Model (CAPM) approach of comput:nq the cost of common equity and retained
earmngs, which among the following formulas is ct:rrealy stated'/
Risk-free rate
K" -Y Expected rate Of return on the

b. (KRF + KY) ß
92. Using Capital Asset Pricing Modci (CAPM), what the of return for a firm with a beta of 1.25 when the market
rate is 14% and the risk-free rate IS 6%?
D
b. 7.5%
93. What IS the difference between the required rate cf on a given risky investment and that on a risk-free investment with
the same expected return?
a. Risk premium
b. Coefficient of variation
94. A measure that describes cthc•v invcstments in general is the
B a. Coefficient of variation
b. Beta coefficient
95. Tibet plans to use retained The beta coefficient for Tibet stocks is L.IS, the risk-free rate of interest .19, eä.imated
to be at 17.4 percent. The flotation costs for the issue Of now common 7 ß•rc.cnt. Under the CAPM, what is the cost
Of using retained earnings to finance the capital
a. 12.40% c. 13

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 MAS Module 4
MAS 10, 11 & 12
b. 12.99% d. 14 26%
96. A company has P in shareholders' and p in debt equity (8% bonds). Its after-tax weighted average cost of capital is
12%, but it uses as hurdle rate in capital budgeting decisions. During the past year, its operating Income before tax
and vva•G P Its tax rate IS 40%. What IS the company's cost Of equity capital?

Spain, Inc. is interested in measuring Its overall of capital and has gathcred the following data. Under the terms described
below, the company can sell unlimited amounts of all instruments.

of

MCQs:
Spain can raise cash by selling P 1,000, 8%, 20-year bonds with annual interest payments. In selling the issue, an
average premium of P 30 per bond would be received, and firm must pay flotation costs of P 30 per bond.
The after-tax cost of funds is estimated to be 4.8%.
Spain can sell 8% preferred stock at P 105 per share. The cost of issuing and selling the preferred stock is expected
to be P 5 per share.
Spain's common stock is currently selling for P 100 per share. The firm expects to pay next year cash dividends Of
P 7 per share, and the dividends arc expected to remain constant. The stock will have to bc underpriced by P 3 per
share, and flotation costs are expected to amount to p 5 per share.
Spain expects to have availablc P 100,000 of retained earnings in the coming year, once these retained earnings arc
exhausted, the firm will use new common stock as the form of common stock equity financing.
Spain's preferred capital structure is: Long-term debt 30%, Preferred stock 20%, and Common stock 50%.
97. What is the cost of funds from sale of common stock for Spain?
c a. 7.0% c. 7.6%
b. 7.4%
98. What is the cost Of funds from retained earnings ror Spain?
a. 7.0% c. 7.6%
b. 7.4% d. 8.1%
99. If Spain needs a total of P 200,000, what would be the firm's weighted everage cost of capital?
a. 4.8%
b. 6.5% 19.80%
SQ!UUQN: 4.8% (30%) + 8.0% (20%) + 7.0% (50%)
100.1f Spain needs a total of P what would be the firm's weighted average cost or capita!?

c. 6.8%
d. 27.4%
4.8% (30%) + 8.0 (20%) + 7.6% (40%) + 7.0% (10%)
Supplemental Notes: Concepts and Measures of RISKS
RISKS can be classified as PURE RISK or
SPECULATIVE RISK.
PURE RISK — the chance that an unwanted and harmful event will take place. Insurance is designed €0 address
pure risk, rx-cause pure risk yields only loss. {this type of risk is not covered in MAS}
SPECULATIVE RISK - applies to Investments and IS defined as the variability of actual returns from expected
returns that may result in a gain or loss.
It is the specu/atwe risk that management must address in its investrqent decisions. Consider the following different types of
risks associated with making an investment decision:
INTEREST RATE RISK (sometimes called PRICE RISK) - is the risk that tho value of the investment will change
over time as a result of changes in the market rate of interest.
If an investment pays a rate of interest that is lower than the market rate, that investment will be able to be sold
only if the price is discounted so that its effective Interest rate. is equal to the market rate of interest.
Prices of long-term bonds are more sensitwe to interest rah' changes than short-term bonds the longer the
investment has to go to reach maturity, the greater will be its taterest rate risk, as there is a longer investment
horizon to be affected by the changes (up or down) in Interest rates.

Page 23 37 pages
 MAS Module 4
MAS 10, 11 & 12
2. REINVESTMENT RATE RISK — is the risk that money invested 'n an instrument that matures cannot be
reinvested into in another investment that will provide the same, or a higher, level of return.

. The sooner a bond matures, the sooner this reinvestment must so short-term bonds carry more reinvestment rate
risk that longer-term bonds
3. PURCHASING POWER RISK — the risk that the purchasing power Of a fixed amount of money will decline as the
result of an increase in the genera: pace level (Inflation).

4. LIQUIDITY RISK — is the possibility that an investment cannot be sold (converted into cash) for its market value.
An investment that must be discounted significantly in ordcr to be old has a high level of liquidity risk.
5. FOREIGN EXCHANGE RISK — is the ask that a transaction denomirated in a foreign currenq will be impacted
negatively by changes in the exchange rate.
6. CREDIT RISK (sometimes called DEFAULT RISK) — is the risk that a tMrower of money will not be able to pay
interest and repay the principal on the debt as it bécomes due.
The higher the credit risk'is that is perceived by the lender, the higher will bé the interest rate the lender vvi!:
require in order to lend the money.
7. POLITICAL RISK - is the risk that something will happen in country that will cause an investment's value change
or even to become worthless. The government Of a country may Change its policies, and this cou!d
investments in the country
Political risks include the obvious risks of government EXPROPRIATION (government seizure of
property with some minimal compensation offered which is generally not an adequate amount) and
(which can affect employee safety and create additional cost', to err-tire employees' safety).
political risks also include BLOCKAGE OF FUND TRANSFFPS: INCONVERTIBLE CURRENCY (the
government the host countw will not allow its currency to be exchanged Into other currencies);
GOVERNMENT BUREAUCRACY, REGtMTIONS AND TAXES; CORRUPTION (such as bribery and
spec,al favors that firm business in that country must fulfill to get contracts); and even the Al TITUDE OF
THE CONSUMERS in the host country, preferring to purchase local products.
8. BUSINESS RISK — is the variability of a firm's EBIT. Business risk depends on different factors such as :
The variability of demand and selling price over time.
The variability of the input price to the product over time. The degree of
operating leverage that the firm has.

Of

MCQs: —
9. TOTAL RISK —is the risk of a single asset taken by itself and not set off against any other investments. It is defined
as the variability of the asset's relative expectcd rcturns i; also sometimes called STAND-ALONE RISK.
10. UNSYSTEMATIC RISK — IS risk that is specific to a company or to the industry in which the company operates. An
example of unsystematic risk is a strike that ha!t5. production at onc company or at all the companies that employ
members Of the union that has gone on strike. unsystematic risk can be reduced through management actions
//ke appropriate diversf/cation Ofinvestments 'n a portfolio.
lt. SYSTEMATIC RISK (measurexl hy "Beta" or ß) — is risk that all are subject to. It is caused by factors that affect all
assets. Examplc would be inflation. macroeccno•nic instability stich as recessions, political upheavals and wars.
Systematic risk cannot be diversified away, on' so 't ever in a fully diversifiedportfoha
12. MARKET RISK - is a type of systematic risk inherent investmen? that is traded on a market simply because it is traded
on a market, and thus it is subject to market :.ncvcments.
A company's stock's pncc Will rise when the madcet rises. and it will fali when the market falls.
Market risk refers to the fluctuations in the price o! a stot:k that occur because of fluctuations in the market.
Market risk has nothing to do with conditions in the company but only with conditions in the market. Hence, Wke
systematic risk, market nsk cannot be divers',fed vay,
13. INDUSTRY RISK — is a risk duc to the changes in the supply and demand of a particular industry.
Most investors arc assumed to be risk-averse. Investors are Willing to accept a lower return in exchange for a reduction of risk in
an investment.
In the Philippines, the least risky investment has been the BSP Ireasury Bills (Tbills). The return On T-bills is fixed,
and it is not affected by what happens in the Philippine Stock Market. Hence, the rate of return on T-bills is regarded
as the "RISK-FREL RATE."
Investments in stock market are riskier than inve:åa.ents in T-bills. Therefore, investors requirc a higher expected
return to invest in the stock market. The difference expected rcturn cn a portfolio of stocks (including all
stocks in the market) and the risk-free :ate ts called "MARKET RISK PREMIUM."
NOTE: Refer to page 3 on the rb/e of "risk-free rate"and "marke! risk premium " under CAP" (Capital Asset Pricing Model).
Page 24 37 pages
 MAS Module 4
MAS 10, 11 & 12
As applied to investments, RISK is the possibility that an investment's actual teturn will differ from its expected return. The
risk of an investment is measured by the STANDARD DEVIATION (and VAR!ANCE) of its potential returns based on the
dispersion about the averagc Or mean return. For decisions involving risks and uncertainty, we use EXPECTED VALUE (or
EXPECTED RETURN) to express the most likely resuEt Of a particular ae_ion.
Expected Value — is a term that means weighted average of the powbie va:ues, (called "random variables" in
statistics) using the subjective probabdltles as weights.
Standard Deviation — IS a measure of degree of variahiLty or disoersion of a discrete probability distribution from the mean
or expected value. Variation within possible cash nows for each investment) is also important because a proJect with a
high variability of cash flows has more risks for which all the possible cash flows are close together. The wider the
distribution of data from the highest to the lowest data points, the greater the standard deviation will be and the greater the
risk be.
COEFFICIENT of VARIATION — is a measure of risk per unit of expected return. (t is based on the
following formula: Coefficient
_Segdard L)gytietion of Variation

Rule: The higher the coefficient of variation is, the riskier the investment ic to it', expected return.
Caution: Just because one project. is determined to be then "nothcr prolcct docs not mean that the less risky option will always
be chosen. One may be willing to take on risk in nr(lcr to attempt greater returns. The ultimate decision is a matter of
professional Judgment. Standard as a or the variability Of results along with expedéd value can be used to "quantify" risk. and
thus tn the decision rnzkinq process.

MAS - 12: FINANCIAL STATEMENTS ANALYSIS (60

Horizontal and vertical analyses are techniques u%Cd by anolysts in understanaing the financial statements of
companies. Which of the following is an example or a verti(a!, common-size analysis?
a. Commission expense in 2019 is 10% greater than it vps in 2018 which serves as base year
b. A comparison in financial ratio between or more firms in the same industry
c. A comparison in financial ratio between two o.- more firms in different Industries
d. Commission expense in 2019 is of sa!es
2. Under the direct method Of determining net cash provided by operating activities on the statement of cash flows, a gain
on the sale of plant assets would be:
a. Added to the amount Of operatng expenses reverted under the at-r.rual bas'S
b. Deducted from the amount of operating expenses ieported under the accrual basis
C. Deduded from the amount of sales repertcd
d. Totally Ignored since the gain is not a part of operating

expenses
3. Chowking has provided the following 2019 balances for the preparatioo of the statement of cash flows:

Accounts receivable
Allowance for uncollectible accounts
Prepaid rent expense
Accounts payable
Chowking's 2019 net income is p 75,000. How much is net cash provided by operating activities?
D a. p 72,700 b, P 73,500

of

Resa-
MCQs: -
4. Jollibee incurred operating expenses amounting to P 265. The following information is also available:
Prepaid expenses, 1/1

Page 25 37 pages
 MAS Module 4
MAS 10, 11 & 12
Accrued expenses, 1/1 40 Prepaid
expenses, 12/31 21
Accrued expenses, 12/31 36 How
much was the cash paid for operabng expenses?
a. P 224
b. P 262 d. P 276
5. Using the indirect methcxl of computing operating cash flows, decrease in trade receivable is treated as c a. A
cash inflow c. A' i addition to Income
b. A cash outflow d. A dedu.,.tion (rom income
6. Which Of the following account changes would be classified as a use 05 funds?
a. An increase in accounts payable C. A decrease in bonds payable
b. An increase in retained earnings d. A decrease in accounts receivable
7. Short-term solvency is another term for
a. Liquidity c. Profitability
b. Stability d. Markctöbi'ity
8. Which of the following ratios best measures short-term solvcnc/?
a. QulCk ratio c. Creditors' equity to total assets
b. Earnings per share d. Reiurn on inventories
9. MC Donald Company has Current assets Of p 400,000 and current cf p 500,000. MC Donald Company's current
ratio would be increased by
a. The purchase of P 100,000 of inventory on account
b. The payment of p 100,000 of accounts payable
C. The collection of P 100,000 of accounts receivable
d. Refinancing a P 100,000 long-term loan with short-term debt
10. Shakey's Corp. has an acid test ratio of 1.5. Which or the following will cause this ratio to deteriorate?
a. Sate of equipment at a ioss. c. Borrowing short-term loan from a bank.
b. Sale of inventory on account. d. payrnent o:' cash dividends previously declared.
11. A company has a current ratio greater than and a quick ratio jess than 1:1. If all cash was used to reduce
accounts payable, how would these cash payments affect (1) current ratio (2) quick ratio? c a. (1) Decreased (2) Decreased
c. (1) increased (2) Decreased
b. (1) Decreased (2) Increased d. (1) Increased 2) Increased
12. The issuance of serial bonds in exchange for a building, With the first installment of the tX)nds due late this
year:
D a. Decreases net working capita: c. Decreases the quick ratio
b. Decreases the Current issue d. Affects all ot the answers as indicated
13. If Jonas co. decides to change from FIFO to LIFO inventory method during a penod of rising pnces, its
a. Current ratio would be reduced c. Inventory turnover would be reduced
b.Debt-to-equity ratio would be reduced d. Cash now would be reduced
14. Which cost flow assumption will result in a higher inventory turnover ratio in an inflationary economy7
a. FIFO c. Weir,ilted everege
b. LIFO d. Specific identification
15. A quick ratio of 2.0, current assets of P 5,000 and inventory of P 2,000 has current liabilities of
a. p 1,500 c. P 3,500
b. P 2,500 d. P 6,000
16. How is the average inventory balance used in the calculation Of (1) acid-test ratio, and (2) inventory turnover?
D a. (1) numerator (2) numerator c. (l) not used (2) numeretor
b. (1) numerator (2) denominator d. (1) not used (2) denominator
17. Selected data from Starbucks are presented below. The difference between average and ending inventories is
immaterial. Current assets are comprised mainly of cash, receivables and inventories.
Current ratio
Quick ratio 1.5
Current liabilities 600,000
Inventory turnover (based on cost Of times
sales)
Gross profit margin
What were Starbuck's net sales for the year?
a. P 2.4 million c. p 1.2 miillon
Page 26 37 pages
 MAS Module 4
MAS 10, 11 & 12
b. P 4.0 million d. P 6.0 million
Inventory: (2 - 1.5) 600,000 P 300,000 Cost of goods sold: 300,000 (8) = P 2.4 M
18. Based on the data presented below, what is Goldilock Corporation's cost 05 sales for the year?
Current ratio 3.5
Acid test ratio
Year-end current liabilities P 600.000
Beginning inventory p 500,000
Inventory turnover go
c
SOLUTION: Ending inventory: (3.5 - 3) 600,000 = p 300,000 Average Inventory: P 400,000

Of

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 MAS Module 4
MAS 10, 11 & 12
Resa-
MCQs:

Accounts receivable, net p 42,500 P 45,000

inventory 40,000 50,000 45,000
Current assets 120.000 140,000 130,000

Total assets, net 700,000 750,000 725,000

Current liabilities 70,ooc 50,000

80,000
Cash sales 400,coo 420,000 450,000

Credit sales rpo,ooo 125,000 131,250

Costs of sales 310,000 324,000 345,000

19.What should be the age of receivables in 2019?
110 days c. days
b. 120 days d. None of these
SQW_TIQN: Receivable turnover: ,250 + 3 Age, AR: 360/3

20. Determine the number Of days in inventory for 2018,

A 70 days
a. 50 days c.
None of these
b. 60 days d.
Inventory turnover: 324,000 + [(40,000 = 7.2 Age, Inventory; 360/7.2
21. What the net working capital turnover for 20197
a. 9.9 c. 7.15
b. 8.3 d. None Of these
SOLUTION: (450,000 + 131,250) * {[(140,000 - 80,000) + (130,030 - 50,000)] + 2}
22. The ratio of sales to working capital is measure Of c a. Collectibillty
b. Financtal leverage :jquici'lv
23. A high sales-to-working-capital ratio could indicate
a. Unprofitable use of working capital
b. Sales are not adequate relative to available working capital
c. The firm is undercapitalized
d. The firm is not susceptible to liquidity prob!ems
24. The number Of days' sales in receivable is a measure of
a. Asset value c. Profitabi!ftv
b. Sales performance d. Liquidity
25. Accounts receivable turnover ratio will normally decrease as a result c.•r
D a. The write-off of on uncollectible account (assume. the use of the allowance for doubtful accounts
method)
b. A significant sales volume decrease new period
c. An increase in cash sales in proportion to credit nies
d. A change in credit policy to lengthen the period for rÆh discounts
26. To determine the operating cycle for a department store, which one of these pairs of items is needed?
a. Days' sales in accounts receivable and avcraqc merchandise inventory
b. Cash turnover and net sales
c. Accounts receivable turnover and inventory t:" nover
d. Asset turnover and return on sales
27. Selected information for 2019 for Tokyo Company is as follows:
Cost o.' goods sold P 5.400,ÜOO
Average invcntory
Net sa:es
Average receivaNcs 950,000
Nct income 720,000
Assuming 360 days in a year, what was average number days in operating cycle for 2019?
 MAS Module 4
MAS 10, 11 & 12
a. 72 days 144 days

b. 84 days d. days
Age, Inventory: 360 + (5.4M/i.8M) Agc, Receivables: 360 + (7.2M * 960,000)
28. The following ratios were computed from Dads Compar.y% finan.-.ial stetements for 2019:
Return on asset
Asset turnover 1.6 Ili'ie3 What was
the company's ptofit margin ratio?
c a. 38.4%
b. 24%
29. Return on investment (Rol) is a term often used to exoress income earned on capital invested in a business unit. A
company's Rol is increases if
a. Sales increase by the same peso amount as expenses and total assets
b. Sales remain the same and expenses are reduced by the same peso amount that total assets increase
c. Sales decrease by the same peso amount that expenses increase
d. Net profit margin on sales increases by the same percentage total assets
30. If a company is profitable by effectively using leverage, which onc of the following ratios is likely to be the largest?
a. Return on total assets C. Petur•l com.tnen equity
b. Return on operating assets d. Return on total cqu.'W

Page 20 Of PE

Rec;a- ff.
MCQs: -
31. ROA and ROE are measures of

a. Solvency c.. Profitability

b. Liquidity d. Current asset activity
32. National Company's return on equity is 12% and debt ratio is 0.40. Determine the return on assets.
a. 5.35% c. 6.60%
d. 7.20%
Based on DuPont technique: ROE = ROA equity ratio 12% ROA + 0.60
33. Selected informatton for Sais-aki Company is as follows:
preferred stock P i2S,ooo p 125,000
Common stock 3Go,OOO 400,000
Retained earnings 75,000 185,000
Dividends paid on preferred stock for the year ended 10,000 10,000
Net Income for the year ended 60,000 120,000
• 8%, P 100 par non-cumulative, non-convertible
What is Saisaki Company's return on common stockholders' equity for 2019?
a. 17% c. 23%
b. 19% d. 25%
Return on Common SHE: (120,000 - 10,000) + (375,000 +
34. It refers to the practice of financing assets with borrowed capital. its extensive use may impact on the return
on common stockholders' equity to be above or below the rate of return on total asset.
a. Discounting c. Leverage
b. Mortgage d. Arbtrage
35. If the return on total assets is 10% and if the return on common stockhoiders' equity IS 12% then
a. The after-tax cost of long-term debt is probably greater than 10%.
b. The after-tax cost Of long-term debt is 120/0.
c. Leverage is negative.
d. The after-tax cost of long •term debt is probably less than 10%.
36. Which would be considered as the most favorable for the common stockholders?

Page 29 of 37 pages
 MAS Module 4
-10, 11 & 12
a. Book value per share of common Stock is substantially higher than market value per share; return on
common stockholder's equity is less than the rate of interest paid to creditors.
b. Equity ratio high; return on assets exceeds the cost Of borrowing.
c. •The company stops paying dividends on its cumulative oreferred the price earnings ratio of
common stock is low.
d. Equity ratio is low; return on assets exceeds the cost of borrowing.
37. If the ratio of total liabilities to stockholders equity in-creases, a ratio that must also increase is the c a. Times
interest earned c. Debt ratio
b. Current ratio d. Return on shareholders' equity 38. The set Of ratios that is most useful
in evaluating solvency is
a. Debt ratio, current ratio, and TIE c. Debt ratac, quick ratio, and TIE
b. Débt ratio, TIE, and ROA •d. Debt ratio, TIE, and cash flow to debt
39. In 2018, Kenny had total assets of P 375,000 and equity for P 206,250. For 2019, its budget for capital
investments is p 62,500. To finance a portion of the budget. the zompany may borrow from a bank provided that the 2019's
debt-to-equity ratio should be the same as the debt-to equity ratio in 2018. How much debt should be incurred to the
bank's condition?
a. P 28,125 c. P 51,138
b. P 34,375 d. p 62,500
SQ_UQN.• Equity ratio: 206,250 + 375,000 = 55% Debt ratio: Debt: 62,500 x 45%
40. A measure of long-term debt-paying ability IS a company'S
D a. Length of the operating cycle c. Inventory turnover ratio
b. Return on assets d. limes-interest-earned ratio
Items 41-43 pre based on the followinq dato:
Operating income p 900,000
Interest ex'mse 100,000
Income before 40% income tax 800,000
Net income 480,000
Preferred stock dividends 200,000

Net income available to common shareholders 280,000

Common shares outstanding 120,000

41.What is the "times interest earned" (TIE) ratio?
D a. 2.8 c. 8.0 b. 4.8 d. 9.0 42. What is the "times preferred
dividend earned" (TPDE) ratio?
2.4
b. 1.7 4.0 43. What is the basic Earnings Per
Share (EPS)?
a. 2.3 c. 3.0
b. 2.6
ReSC!- ne
MCQs: MAS-
A company has net income or P 250,000 and dividen:.lc. p 50,000 On its convertible preferred stock There were 400,000
shares of common stock outstanding the I.onvcrtlble 'Gto 175,000 Shares or common
stock. Basic earnings per share were (rounded).

a. PO.48 c. P 0
60
b: p 0.50
45. A company has net income of P 250,000 and Its convertible prcferred stock. There were 400,000 shares Of common
stock outstanding the pre!errcyl i' convertible into 125.000 shares of common
stock. Diluted earnings per sharc were (rounded):

a. p 0.4B C. P
0.60
b. P 0.50
46. The book value per share a corporation usually different nom the market value of the stocks due to the

Page 30 37 pages
 MAS Module 4
MAS 10, 11 & 12
a. Use of accrual accounting in preparing linancidl Statements
b. Omission of the number of preferred shares outstdnding at year•cnd in the calculation
c. Use of historical costs in preparing financial slaternen:•;
d. Omission Of total assets from the ntnnerato,• in
47, 300k value per common share represents the arnol',e 0t eavity to each outstanding share Of common stock. Which one
of the followinq statcmcnt% per common share is correct?
a. Market pnce per common sharc usually vaive common share
b. Book value per common can be mislea:'rng It on historical cost
c. A market price per common sha,-e thal IS greatcr than tx»ok value per common share is an indication of an
overvalued stock
d. Book value per common share is the amount that Muld be p.)id to shareholders if the company were sold to
another Company
48. KFC Company's equity balances as Of the (Otlows:
end Of 7019
6% cumulative preferred stoca 2,000 sharcs
P 200 par value, with liquidation va,'ue of
p 400,000
Common stocks, 20,000 shares issued and 800,000 Retained earnings

Preferred dividends in arrears amount to P 24000. What F. KFC Company's book value per share of common stock?
D a. P 111.20 c. P 89.20
b. P 91.20
[800,000 4. - 24,000 - 2,000 (220 2c0)] * 20,000
49. The issuance of new shares in a five-for-one split of commen :-tcrk
a. Decreases the book value per share of common stock
b. Increases the book value share of common stock Increases total stockholders' equity
d. Decreases total stcckholders' equity
50. Financlal ratios, which assess the profitab:ilt•,' of a company. 311 of the following. except
a. Dividend yield c. per share
b. Gross profit percentage d Pctw.•: sales
51. A drop in the market price of a firm's common stock Increase its
a. Return on equity c. ratio
b. Dividend payout ratio d. yield
52. Which Of the followanq Statements about the pace-earnings (P•E) ratit, is correct?
a. A company with high growth opportun:ties ord;naniy has nigh P-E ;atio
b. P-E rato has more meaning whoa a firm has losses than it has profits

c. P-E ratio has more moaning when a firm has at30:mally low prcfits in relation to its assets
d. P-E ratio expresses the relationship a firm% market price and Its net sales
53. The following information is provided about the common stock karate kid Inc. at the end of the year:
Per valuc per share p 10.00
Dividends paid per share 22 montht.) 12.00 Market
price per share 108. on 3asic earnings pay shale
36.00
Diluted earnings per Ghare 24.00
What is the price earnings ratio for Karate Kidß common
a. 3.0 times c. 9.0 hn:es
b. 4.5 times d. 10.8 times
Price•carnings ratio is preferably based on d/vfegcarnings per Ghare.
54. Aristocrat paid Out half of last year's earnings In dmdends. Artstocr;'!'" increased by 20% and the amount Of
dividends increased by in the current What was Arint'craVs dMdend payout ratio for the year?
a. 50.0%
b. 57.5%
SOLUJJON: payout ratio: 1.00 (1.15) +
2.00
55. Watson computed the following items from its records for the year:
Price-earnings ratio: 12Assets turnover ratio: 0.9 What is the
dividend yield on Watson's common stock?
a. 5.0%
b. 7.5% d. 10.8%

Page 31 of 37 pages
 MAS Module 4
-10, 11 & 12
Yield x P/E = payout (dividends/price) (pnce/eaminas) = dividends/earnings

c;
Rosa
MCQs:
55. Dividend veld is 10%, price-earnings ratio is 4 times, what is the plowback ratio?
a. 2.5%
b. 40% d- Cannot be determined from given Information
WQT_E: plowback ratio = Rctenticn ratio = 100% - payout ratio
56. ABC Corporation is a closely held corporation owned by the siblings Antoi"ette, Bonna & Connie. It currently earns a
profit after tai Of p and has 300,000 shares outstanding. Next year, ABC WIII go public for the first time.
Its initial public offering of 100,000 shares will be priced at p 60 per Share, with a 5% underwriter'S spread on the
price offering. In addition, ABC will incur P 200,000 in out-of-pocket costs. Jf all the shares will be issued, how much
will be the net proceeds?

d. PG.000,ooe SOJU- LON:

[100,000 (60) x 95%] - 200,000
57. Which of the following is not a potential source of financial leverage?
a. Long•terrn debt c. Prcierr:.'d stock
b. Common stockd. Current liaoilitie5
58. Which of the following is not a limitation of ratio analysis affecting comparability among firms?
a. Different source Of Information
b. Different accounting periods
c. Different accounting policies
d. Provision of useful information regarding stability of financial conditions
59. Which of the following is not a problem or limitation associated with financial Äaternent analysis?
a. Financial statements are based on current market value of the firm's assets, therefore do not reflect
historical costs
b. There may be some differences in the accounting methods and estimates used by companies so that
comparison of their ratios may not be advisable
c. The timing of transactions and use averages applying 'he various techniques in FS analysis affect the
results to be obtained
d. A ratio that IS acceptable to one company may not be acceptab;e to another when some Other factors are
considered
60. Financial statement analysis is least associated with
a. Common-size income statement c. Liquidity and profitability
b. Gross profit variance d. Productivity
PRACTICE SET (33 MCQs)
A firm has common stock with a prevailing market price P IOC per fihåre. Nev. issue of stock is expected to be sold for
P 98, with p 2 per share representing the underpricing in the competitive capital market.
Flotation costs are expected to be p 1 per share. The dividends raid over the past five years are as follows:
Year p
4.00
4.28
3 4.58
4 4.90
5 5.24
What is the cost of the firrrfr new common stock equity?
a. 5.8% 10.8%
b. 7.7% d. 22 8%
Francisco Corporation is preparing to issue common stock The Chief Financial Officer (CFO) is attempting to
estimate Francisco Corporation's cost or new common stock. 'E ht next dividend expeded to be P 4.25 and Wii! be
paid one year from now. The current market price reflects an IS% expected annual return on investors. Dividends
are expected to grow at d constant 8% per year. Flotation costs on the new issue will be P 1.25 per share. What is
Francisco' cost Of new common stock?
a. 18% c. 19.25%

Page 32 37 pages
 MAS Module 4
MAS 10, 11 & 12
b. 18.3% d. 19.44%
3. The Roberto Corporation currently has earnings that are P •1 per share. In recent years, earnings have beca growing
at a rate of 7.5%, and this rate is expected to continue in the future. If Roberto Corporation has a retention rate of
40 percent and a required rate of return Of percent, what is its current value?
a. P 39.69 p 26.46
b. P 36.92 d. p 24.62
4. Jocelyn Corporation's P 1,000 bonds that pay a coupon rate of P percent in a single annual payment and mature it.
10 years are selling for a current market price of P 1,050. The corporote tu bracket rate is effectively 40%. using
approximate yield-to-maturity (YTM) rates based on 50-50, what is the relevant after-tax cost of debt to be used in
the computation Of Jocelyn Corporation's cost of capital?
a. 7.56%c. 4.39%
b. 7.32%d, 2.93%
5. Joey Inc.'s stock is expected to generate a dividend and terminal value d year from now of P 57.00. The stock has a
beta of 1.3, the risk-free interest rate of 6%, and the expected market retum is t 1 percent. What should be the
equilibrium price of the Joey's stock in the market now?
a. P 43.87 c. p 51.35
b. P 50.67 d. P 53.7?

Page 33 of 37 pages
 MAS Module 4
MAS 10, 11 & 12

MCQs: -
6. Given the following Information for the stock of Emma Company. calculate its
Current price pcr share of common: P 50.00
Expected dividend per share: P 3.00
Constant annual dividend growth rate: 9% Risk-free rate of return: 7%
Return on market portfolio:
a. 2.67 1.51'
b. 1.67
7. Alvin Company is negotiating to purchase equipment wou!d cost P 200,000, with the expectation that P 40,000 per year
could be saved in after-tax cash costs if nt. were acquired. The equipment's estimated useful life is 10 years, with no
desired rate or return is 12%. Present va!ue rl an annuity if P 1 at 12% for 10 periods is 5.65. Present value of P 1 due in
10 periods at is 0.322. What is the average accrual accounting rate of retum during the first year of asset's use?
a. 10.0% c. 2C.0% .
b. 10.5% d. 40.0%

8. An office equipment representativc has a rnachine fcr Gö?c or leaso. If you buy the machine, the cost is P 7,596. If you
lease the machine, you will have to Sign a non-cancelable and make 5 payments Of P 2,000. The first payment wi// paid
On the first o.' lease. At the time. of the iast payment, you will receive title to the machine. The present value of an
ordinary annui:y of P as
893
2 1.736 1.593
1.605
3 2.487 2.402 2.246
4 3.170 3.037 2.798
5 3.791 3.605 3274
What is the interest rate implicit in this lease?
d.
and 12%
9. Given a projeces data for Laurence Comnany that uses straight-hnc for depreciation:
Initial investment
Estimated lite
Cost of capital
Tax rate
The present value factors of P t at are showr. as follows: year : , 0.870; year 2, 0.756; year 3, 0.658; year 4, 0.572
(Total 2.856). Had Laurence Company used surn-ofdhe•years digit method in lieu of straight-line method, net
present value would have increased (decreased) by how much?
a. P 20,493
b. (P 20,493) d. . (P 1,984)
10. Nancy Company is consldering a new product that for P 100 and has variable cost of P 60. Expected sales volume is
20,000 units. New equipment costinq P With a tivQ•year useful life and no terminal salvage value is needed. The
machine will be depredated using the method. The machine has cash operating costs of P 20,000 per year. The firm is in
the 40% tax bracket and hes cost of capital of 12%. The present value of 1, end of five periods IS 0.56743; present vaice
or d"nuity of I S periods is 3.60478. Suppose the 20,000 estimated sales volume sound, but the price is ir. doubt, r.'i:at :s
(he selling price (rounded to nearest peso) needed to earn a 12 percent internal rate Of return?
a. p 70.00 c F 65.00
b. p 81.00 d. P 90.00
11. Jack Corporation needs to pay a Supplier's invoicc of P 60,000 und wants to take cash discount Of 2/10, net 40. The
firm can borrow the money for 30 days at per annum with a 9% compensating balance. Assuming a 360-day year, what
is the amount that Jack m'-'st borrow to pay the supplier within the discount period and cover the comm?nsating
balance?
a. P 65,934 c. P 60,000
b. P 64,615
12. Christopher Investments has a weighted average c.ost oi capidl 12% and is evaluating two mutually exclusive projects
(AM and PM), which have the following
Investment P 48.000 P 83,225

Page 34 of 37 pages
 MAS Module 4
MAS 10, 11 & 12
After-tax cash inflow 12,000 15,200
Asset life 6 years 10 years
What is the indifference pont for the two projects?
12.00% 16.01%
b. 12.64% d. 19.33%
13. The controller or Richmond Company wants to know how much minimum cash rcquirement will be maintained. The
company's accountant provided the fogowing information.
Inventory turnover: 10 Y Accounts payable t{iinover: 20 x
The annual rash requirement IS p Aver:gt.s .YCr-ptvable rolieainn period is 25 days. There are Only 300 working days
during the year. What should be the operating cash requirement?
a. P 112,500
b. p 121,500 d. P i50,OOO

MCQs:
14. Mark Company's increase in assets and vontancous liabilities in proportion to ples growth arc 72% and 18%,
respectively. In 2018, sales amounted to P 5,000,000 and is expected grow by the next year. Assuming an after-tax
profit margin of 10% and a payout ratio of 60%. What should bc the incrcased sales next year (2019) so that there is no
need for external financing requirement (additional funds' needed)?

15. Allen Company has annual credit sales of p average collection

period is 40 days, and bad debts are 5% of sales. The credit and collection manager is considerinq in<itutino a strider
collection policy, whereby bad debts would be reduced to 2% of total sales, and the average collection period would fall
to 30 days. However, sales would also fall by an estimated P 500,000 annually. Variable cost is of sales and the cost of
carrying receivables is 12%. Assuming a tax rate Of 35% and 360 days a year, the incremental change in the
profitability of the company if stricter policy would be implemented would be
a. An increase In net income by P 12,000 c. A reduction in net income by P 38,350
b. A reduction in net income by p 70,000 d. A redudion in net income by P 35,400
Items informatCon
Liza Company has compiled several factors relative to its financ!nq mix. The firm pays 8% on shot-term funds and
on long-term funds. The firm's monthly current, fixed and tota; assets requirements for the previous operating year
are as follows:
Month Current_Assets
January 125,000 250,000 375,000
February 130,000 250,000 380,000
March 135,000 250,000 385,000
April 150,000 250,000 400,000
150,000 250,000 400,000

June 125,000 250,000 375,000

July 115,000 250,000 355,000
August 120,000 250,000 370,000
September 115,000 250.000 365,000
October 100,000 250,000 350,000
Novcmbcr 110,000 250,000 360,000
December IIS,ooo 250,000 365,000
16. How much is the monthly average (A) permanent and (B) temporary' financing requrrement?
a. (A) P 350,000 (B) P 27,500 (A) p 250,000 (B) P 127,500
b. (A) P 350,000 (B) p 24,167 d. (A) P 250,000 (B) P 124,167
17. Determine the annual financing costs under (A) aggressive and (B) conservative financing strategy.
a. (A) P 35,000 (B) p 40,000 (A) P 40,000 (B) P •10,000
b. (A) P 36,933 (B) p 40,000 d. (A) P 1,933 (B)
18. Michelle, Inc. expects net income of P 800,000 for the next fiscal year. Its targeted and current capital structure is 40%
debt and 60% common equity. The director of capita! budgcti"q has determined that the optimal capital spending for the
next year is P 1.2 million. If Michclle follows a residual dividend policy, what is expected dividend-payout ratio for
next year?

a. 90.0% c. 40.0%
b. 66.7% d. 10.0%

Page 35 of 37 pages
 MAS 10, 11 & 12
19. DSUL's budgeted sales and gross profit rate for the coming month are P and 37.5%, respectively. Short-
term interest rates are expected to average 6%. If DSUL could increase inventory turnover from its current
8.0 times per year to 10.00 times per year, what would be its expected cost savings in the current year?
c P 270,000 b. P 810,000 d. p 162,000
20. The average shareholders' equity for Yan Company for 2019 was P 2,000,000. Included in this figure is P 200,000 par
value of 8% preferred stock, which remained unchanged during •she year. The return on common shareholders' equity
was 12.5% during 2019. How much was the net income of the company in 2019?
a. p 250,000
b. p 241,000 d. P 266,000
21. Given the following information on the Mark Corp. including certain forecasted balance sheet accounts:
This year's sale
Next year's sale
After tax profits 4 percent of sales Dividend pay-
out 40%
This year's retained earnings
Cash as percent of sales
Receivables as percent of sa'es 18%
Inventory as percent of sales 30%
Accounts payable as percent of sales
Accruals as percent Of sales
Next year's common stock
What is the forecasted amount of retetned earnings next year?

Resa-
MAS Module 4
MCQs: -
22. Because of tight competition and the need to speed collections, Daisy Communications is considering tv.'0
changes in its credit terms: Offer a cash or 2% to buyer; Vail pay within 10 days after the date of sale; and (2)
offer a credit penod of 30 days (the com:yny on a cash-on-delivery bass). The policy is expected to attract new
customers thereby Increasing sales by P from its present level Of P
Since the effect Of the discount is expected to outweigh the impect of the longer credit period, the proposed
poliq• IS expected to reduce accounts receivable from P to P The company, however, expects to incur bad debt
losses amounting to 2% of the addition2i sales. It is also estimated that 60% of sales will be given the cash
discount. Variable costs are 65% Of sales. An op;rytuntty cost of 18% is based on average invt%tment in
receivables. How much is the net incremental benefit (cost) o.' the proposed policy?

23. (JEE Company has a debt ratio Of 0.50. a total assots turnover of 0.2%. ant! a profit margin of 10%. The
president unhappy with the current return on equity, and thinks it cotßd doubled. This could be accomplished
(1) by increasing the profit margin to 14% and (2) by increasing debt utilization. Total assets turnover will not
change. What new debt ratio, along with the 14% profit margin, is required to double the return on equity?
a. 0.75 c. 0.55
b. 0.70 d. 0 55
24. The SPBA CorX)ration is about to go public. It currently has after-tox earnings of P 7.5 million and 2.5 million
shares are owned by the present stcx.kholders (the Family). The new public issue will represent 600,000 new
shares. The new shares will be priced to the public at P P.C pet' share, with a 5% spread on thc offering price.
There will also be P 200,000 in out-of-pockct costs to the cowo.-öt%-t. Determine the rate of return that must be
earned On the proceeds to the corporation M, there nat be e "ilutict in earnings per share during the year of going
public.
14.95% 16.07%
b. 15.08% d. 16.90%
25. ATE Company, a maker of customer upholstery fabrics, concerned about preserving the wealth of its
shareholders during a cyclic downturn in the horne furnish'nq business. The company has maintained a constant
dividend payout Of P 2.00 tied to a target payout ratio of 40%. Management is preparing a share repurchase
recommendation to present to the firm's board of directors. The following data have been gathered'

Earnings available for common stockhc'ders

Number of shares Outstanding
Earnings per share P
Market prtce per share p 22.50 20.00
Price/earnings ratio 5.6

Page 36 of pages
 MAS Module 4
MAS 10, 11 & 12
How many shares should the company have outst?nd.ng i:' o;der to combine the earnings available for common
stockholders of P in the year 2019 ano a dividend of P 2.00 to produce the desired payout ratio Of 40%?
a. 240,000 shares c. snares
b. 600,000 shares d. 150,COO shares
26. The following year-end data pertain to Anthony Corporation:

Valu
e
Current assets P 800,000
Non-current assetä
Current liabilities
Non-current liabilities (8% interest rate)
Stockholders' equity
During the year, the company earned income berorc and taxes of p 800,000. It pays income tax at the rate
of 25%. Its cost of equity capita! is 12%, What is the comoåny's economic value added (EVA)?
a. P 422,000 c. P 222,000
b. P 240,000
27. Product life cycle costing determines the total Of a proéJtt over its life cycle by dividing costs into four (4)
groups:
1) Upward costs (e.g., research and and design engineering)
2) Prcxfuction costs
3) Downward Costs (e.g., marketing and channels ot
4) Post-sales service costs (c.g., customer service
A company's product has an expected A-year life from research, development, and design through Its withdrawal
from the market. Budgeted costs are:
Upstream costs (R & D, design)
Manufacturing costs
Downstream costs (marketing, distnbutinn, customer cervice)
After-purchase costs
The comrmy plans to produce 200,000 units and price the product. at 125% Of the whole-life unit cost. Thus, what is
the budgeted unit selling price?
a. P 15 P36
b. P31

- END
2(_;

Page 37 of 37 pages