Professional Documents
Culture Documents
TESTBANK
1. For a given company, the cost of preferred stock is less than the cost
of common stock because:
5. Using the Capital Asset Pricing Model (CAPM), the required rate of
return for a firm with a beta of 1.25 when the market return is 14
percent and the risk-free rate is 6 percent is
a. 8.4% c. 13.7%
b. 12.5% d. 15.4%
7. Kent Goods, Inc. has a total assets turnover of 0.30 and a profit margin
of 10 percent. The president is unhappy with the current return on
assets, and he thinks it could be doubled. This could be accomplished
(1) by increasing the profit margin to 15 percent and (2) by increasing
the total assets turnover. What new asset turnover ratio, along with 15
percent profit margin, is required to double the return on assets?
a. 35% c. 40%
b. 45% d. 50%
11. GRX Inc. has a current ratio of 4:1. Which of the following
transactions would normally increase its current ratio?
a. Purchasing inventory on account
b. Purchasing machinery on cash
c. Selling inventory on account
d. Collecting on accounts receivable
12. OTW Corporation has current assets totaling P 15 million and a current
ratio of 2.5 to 1. What is OTWs current ratio immediately after it has
paid P2 million of its accounts payable?
a. 3.75 to 1 b. 2.75 to 1 c. 3.25 to 1 d. 4.75 to 1
13. Horizontal, vertical, and common size analyses are techniques that are
used by analyst in understanding the financial statement of companies.
Which of the following is an example of vertical common-size analysis?
a. Commission expense in 19x5 is 10% greater than it was in 19x4
b. A comparison of financial ratio form between two or more firms
of the same industry
c. A comparison in financial form between two or more firms in
different industries
d. Commission expense in 19x5 is 5% of sales
14. A financial analyst made up the following schedule for Health Care
Products:
19x8 19x7 19x6 19x5
Net Sales 134% 116% 107% 100%
Net Income 123% 111% 110% 100%
15. Joemyr has projected cost of goods sold of P4,000,000, including fixed
cost of P800,000.Variable costs are expected to be 75% of net sales.
What will be the projected net sales?
a. P4,266,667 b. P4,800,000 c. P5,333,333 d. P6,400,000
16. A firm forecasted sales of P3, 000 in April, P4, 500 in May and P6, 500
in June. All sales are on credit. 30% is collected in the month of sale
and the remainder the following month. What will be the balance in
accounts receivable at the end of June?
a. P1, 950 c. P4, 550
b. P6, 500 d. P5, 100
(17-18)
Operational budgets are used by a retail company for planning and
controlling its business activities. Data regarding the companys
monthly sales for the last 6 months of the year and its projected
collection patterns are shown below.
Forecasted sales
July P775,000
August 750,000
2 | Page
September 825,000
October 800,000
November 850,000
December 900,000
Types of sales
Cash sales 20%
Credit sales 80%
Question 1- The budgeted cost of the companys purchases for the month of
August would be
a. P302,500 c. P307,500
b. P305,000 d. P318,750
Question 2- The companys total cash receipts from sales and collection
on account that would be budgeted for the month of September
would be
a. P757,500 c. P793,800
b. P771,000 d. P856,500
19. Watson Corporation computed the following items from its financial
records for the year:
Price-earnings ratio 12
Payout ratio 0.6
Asset turnover ratio 0.9
The dividend yield on Watsons common stock is
a. 5.0% b. 7.5% c. 7.2% d. 10.8%
21. The least common motive for a firm to hold cash and marketable
securities is
a. the transactions motive
b. the speculative motive
c. the safety motive
d. the liquidity motive
23. The Gwaps Corporation has an outstanding one-year bank loan of P300,000
at a stated interest rate of 8 percent. In addition, Gwaps is required
to maintain a 20 percent compensating balance in its checking account.
Assuming the company would normally maintain zero balance in its
checking account, the effective interest rate on the loan is
24. During 2005, Ver Company purchased P1,920,000 of inventory. The cost
of goods sold for 2005 was P1,800,000 and the ending inventory at
3 | Page
December 31, 2005, was P360,000. What was the inventory turnover for
2005?
a. 5.0 c. 6.0
b. 5.3 d. 6.4
25. During 2005, Concon Company paid a current dividend of P35,000 to its
preferred stockholders. In addition, Concon Company paid a P55,000
dividend to its common stockholders. If 25,000 shares of common stock
were outstanding through the years and net income was P160,000, then
the earnings per share of common stock was
a. P2.80 c. P5.00
b. P4.25 d. P6.40
26. Given a years end net income of P 1.5 million, and 50,000 common
shares outstanding throughout the year with the market price per share
at years end being P 120, the price-earning ratio is
a. 2 times b. 3 times c. 4 times d. 5 times
28. The following is the balance sheet for 2006 for Marvelous Inc.
Marvelous Inc
Balance Sheet
2006
Sales for 2006 were P3, 000, 000. Sales for 2007 have been projected
to increase by 20%. Marvelous Inc. is operating below capacity. The
company has an 8% return on sales and 70% is paid out as dividends.
29. Michigan Merchandising is preparing its cash budget for January 2010
and made the following projections:
Sales P1,500,000
Gross profit rate 25%
Decrease in inventories 70,000
Decrease in Accounts Payable for Inventories 120,000
For January 2010, what were the estimated cash disbursements for
inventories?
a. P935,000 c. P1,055,000
b. P1,050,000 d. P1,175,000
32. GHI Companys budgeted sales for the coming year are P40,500,000 of
which , 80% are expected to be credit sales at terms of n/30. GHI
estimates that a proposed relaxation of credit standards would increase
credit sales by 20% and increase in the average collection period from
30 days to 40 days. Cost of money is 15%.Based on a 360-day year, how
much opportunity cost is involved with the proposed relaxation of
credit standards?
a. P243,000 b. P540,000 c. P900,000 d. P1,620,000
34. Which of the following equations can be used to budget purchases? (BI=
Beginning Inventory, EI= Ending Inventory desired, CGS= Budgeted cost of
goods sold)
a. Budgeted purchases= CGS+BI-EI
b. Budgeted purchases= CGS+BI
c. Budgeted purchases= CGS+EI+BI
d. Budgeted purchases= CGS+EI-BI
35. Which of the following transactions would increase the current ratio
and decrease net profit?
a. An income tax payment due from the previous year is paid.
b. A stock dividend is declared
c. Uncollectible accounts receivable are written off against the
allowance account
d. Vacant land is sold for less than the net book value
40. Based on the data presented below, what is HULOGNA Corporations cost
of sales for the year?
Current ratio 3.5
Acid test ratio 3.0
Year-end current liabilities P600,000
Beginning Inventory P500,000
Inventory turnover 8.0
a. P1,600,000 b. P2,400,000 c. P3,200,000 d. P6,400,000
41. Assume you are given the following relationships for the KEMPIT
Company:
Profit margin ratio 6.0%
Sales/total assets 1.5 times
Return on assets (ROA) 9%
Return on equity (ROE) 20%
The KEMPIT Companys debt ratio is
a. 45% b. 55% c. 35% d. 65%
42. It is the rate that a firm must earn on the projects in which it
invests to maintain the market value of its stock.
43. KAYAKOPA Motor Company uses 4,500 units of Part S-10 each year. The
cost of placing one order for Part S-10 is estimated to be about P20.
Other cost associated with carrying Part S-10 in inventory are:
45. The following ratios are used to measure the profitability and returns
to the investors except:
a. Gross profit margin c. Dividend yield
b. Operating profit margin d. Current Ratio
46. The current market price of Rex Company stock is P80 per share and its
price-earnings ratio is 8 to 1. A P4 annual dividend was just paid to
current shareholders. If dividends and earnings are expected to grow at
a constant rate of 12%, Rex Companys cost of retained earnings is
a. 50% c. 17.0%
b. 17.6% d. 12.5%
6 | Page
47. The MNO Company believes that it can sell long-term bonds with a 6%
coupon, but a price that gives a yield to maturity of 9%. If such bonds
are part of next years financing plans, which of the following should
be used for bonds in their after tax (40% rate) cost of capital
calculation?
a. 3.6% c. 4.2%
b. 5.4 % d. 6.0%
(48-50)
KLEM Corporation is considering a project for the coming year that will
require an investment cost of P100,000,000. The company plans to
finance the project by a combination of debt and equity, as follows:
Issue P20,000,000 of 10-year bonds at a price of 102, with an
interest rate of 10%, and flotation cost of 3% of par.
Use P80,000,000 of funds generated from earnings retained in the
business. The expected market rate of return is 14%. The current
rate of Treasury bills is 8%. The beta coefficient for KLEM
Corporation is 1.2. The corporate income tax rate is 30%.
(51-55)
Following are selected financial and operating data taken from the
financial statements of MARYLYNE Corporation:
As of December 31
200B 200A
Cash P 80,000 P 640,000
Notes and accounts receivable, net 400,000 1,200,000
Merchandise inventory 720,000 1,200,000
Marketable securities short term 240,000 80,000
Land and buildings (net) 2,720,000 2,880,000
Bonds payable long term 2,160,000 2,240,000
Accounts payable trade 560,000 880,000
Notes payable short term 160,000 320,000
Question-5: The average age of accounts receivable for 200B (use 360 days):
a. 19.57 days c. 0.05 days
b. 19.57 months d. 18.40 days
56. A firm has total interest expense of P 16,000 per year, sales of
P 600,000 per year, a tax rate of 30%, and a net profit after tax of
P 56,000. What is the firms times interest earned ratio?
a. 6 c. 4.5
b. 5 d. 3.5
57. A firm has daily cash receipts of P100,000. A bank has offered to
reduce the collection time on the firms deposits by two days for a
monthly fee of P500. If money market rate are expected to average 6%
during the year, the net annual benefit (loss) from having this service
is
a. P12,000 c. P3,000
b. P6,000 d. P 0
**********END OF EXAMINATION**********
klem
8 | Page
59. A companys investment turnover is 1.4 and the return on invested capital is
35%. What is the profit margin?
a. 25% c. 49%
b. 35% d. 87.5%
60. Francis Companys debt to equity ratio is 0.6 to 1. Current liabilities total
P120,000 and long term liabilities total P360,000. If Francis Company has
working capital equal to P140,000, total assets must equal
a. P600,000 c. P800,000
b. P1,200,000 d. P1,280,000
62.Ryan Company had 20,000 shares of common stock outstanding through 2005. These
shares were originally issued at a price of P15 per share. The book value on
December 31, 2005 was P25 per share and the market value on December 31, 2005
was P30 per share. The dividend on common stock in total for 2005 was P45,000.
The dividend yield ratio for Ryan Company for 2005 was
a. 9% c. 15%
b. 7.5% d. 10%
63. When a company offers credit terms of 2/10, net 30, the annual interest cost,
based on a 360-day year, is
a. 24.0% c. 35.3%
b. 24.5% d. 36.7%
65. The Pennsylvania Company is preparing its cash budget for the month of May.
The following information is available concerning its accounts receivable:
Estimated credit sales for May P200,000
Actual credit sales for April 150,000
Estimated collections in May for credit sales in May 20%
Estimated collections in May for credit sales in April 70%
Estimated collections in May for credit sales prior to April 12,000
Estimated write-offs in May for uncollectible credit sales 8,000
Estimated provision for bad debts in May for credit sales in May 7,000
What are the estimated cash receipts from accounts receivable collection in
May?
a. P142,000 c. P150,000
b. P149,000 d. P157,000
klem
9 | Page