Theory

1.c
2.d
3.c
4.d
5.b

6.d
7.d
8.c
9.c
10.d

11.d
12.b
13.d
14.d
15.c

16.b
17.a
18.a
19 d
20.c

21.d
22.c
23.d
24.c
25.c

26.a
27.b
28.b
29.c
30.d

31.d

Problems:
1. A
Current Ratio = Current Assets/Current Liabilities
2 = Current Assets/ 400,000
Current Assets = Php 800,000
Current Ratio cannot be lower than 1.00 therefore the current liabilities can amount up to Php 800,000. Franz can secure a
liability amounting to Php 400,000 (800,000-400,000)
2. D.
Solution:
Php 320,000 (total assets) 260,000 (fixed assets)= 60,000 (current assets)
Long term financing = 260,000 +60,000
3. D
Solution:
Restristed
Current Assets
(400,000*.15)
(400,000*.25)
Fixed Assets
Total Assets

Relaxed

60,000
100,000
160,000

100,000
100,000
200,000

Debt (50% of TA)

Equity (50% of TA)
Total Debt and Equity

80,000
80,000
160,000

100,000
100,000
200,000

EBIT
Interest Rate
(.10*80,000)
(.10*100,000)
EBT
Tax (40%)
Net Income

36,000

36,000

(8,000)
28,000
(9,600)
16,800

(10,000)
26,000
(10,400)
15,600

Divide by Equity
Return to Equity

80,000
21%

80,000
15.6%

Difference (21%-15.6%) =5.4%

4. B
Solution:
Inventory Period = July 1 Sept 30 Average Collection Period =Oct 31 to Nov. 30 Deferral Period
= July 1 July 20
Cash Conversion Period

91 days
61 days
(19 days)
133 days

5. D
Solution:
Disbursement Float - (15,000 X 5)
Collection Float (17,000 x 3)
Net Float

75,000
(51,000)
24,000

6. D
Solution:
10 DAYS + 30 DAYS +40 DAYS / 3 = 26.67 days
7. A
8. A
Solution:
20,916.20 x 10% = 2,091.65
9. C
Solution:
Average collection period of CMR without central collection system (5+4+1.5) = 10.5 days
Average collection period of CMR with central collection system (3+1)
=4.0 days
Difference
6.5 days
Multiply by average daily collection
100,000
Increase in average cash balance
650,000
10. D
Solution:
Cost of Checks per day (200 x 500) =
Multiply by (reduction in processing time 2+.5)

Php100,000
2.5

Total
Multiply by annual interest rate
Annual Savings

Php 250,000
x
.06
Php 15, 000

11. B
Solution:
Daily Cash Receipts
Multiply by reduction in days
Savings
Multiply by money market rate
Interest Income
Less: Monthly fee (2500x12)
Additional Income (Loss)

Php 150,000
x
4
600,000
x
.04
24,000
(30,000)
(6,000)

12. B.
Solution:
Cost of daily payments ( 325 x 1,250)
Php406,250
Multiply: Saving in mailing and processing time (1.3 +0.9)
x 2.2 days
Total Gross Savings per day
893,750
Multiply by: daily interest rate
.021%
Total Daily Income
Php187.6875
Multiply by: Processing days in a year
x 250 days
Total Gross Annual Savings
Php46, 921.88
Less Annual Bank Charges: (.30*325*250)
(24,375.00)
Net Annual Savings
22,546.88
13. D
Solution:
Savings = 17,000 x 1 day = 17,000 x .14 = 2,380
14. A
15. C
16. D
Solution:
AR Turnover

Average Receivable

New
=360/50
=7.2 times

=(60M x .95)/7.2
=7,916,666.67
Difference = (14,583,333.33 7,916,666.67)
= 6,666,666.67 (decrease)

Old
=360/75
=4.8 times
=70M/4.8
= 14,583,333.33

17. D
Solution:
AR Turnover

Accounts Receivable

Old
=360/30
= 12 times

New
=360/45
= 8 times

=76,800,000/12
= 6,400,000

= (76,800,000x1.30)/8
= 12,480,000

Difference =12,840,000 6400,000 = 6,080,000

18. C
Solution:
Sales
Cost of sales
Gross Profit
Collection Costs
Uncollectible Expense
Net income before tax
Income Tax
Net Income after tax

1,000,000
700,000
300,000
50,000
150,000
100,000
35,000
65,000

19. B
Solution:
10% slow payers
.22 (.10) + .05(.90)
= .022+.045
=.067 x 3000 accounts = 201 accounts
20. C