Financial Mngmt. (Prelim to Final Exam and Quizzes) PDF

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Financial Management (Prelim to Final Quizzes and Exam)Answers Questions150 , 000 FPL Company has a total Assets worth 400 , 000 of which 250 , 000 are non current the company also has 2 00 , 000 total liabilities of which 150 , 000 are long term debts. What is the gross working capital? 97,500 The ...

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Financial Management (Prelim to Final Quizzes and Exam) Answers

Questions

Increase the total market value of the equity

FPL Company has a total Assets worth 400,000 of wh which ich 250,000 are non curre current nt the company also has 2200,000 00,000 total liabiliti liabilities es of which 150,000 aare re long term debts. What is the gross working capital? The Merriam Company has determined that its return on equity is 15 percent. Management is interested in the various components that went into this calculation. You are given the following information: (total debt)/(total assets) = 0.35 and total assets = 1,000,000. What is the net income? Which of the following is not a classification of funds on the basis of period? The exchange rate in the spot exchange market that is also called quantity quotation. This type financing borrows money with interest from financial institutions such as banks and credit-unions. Stock split resulted to the following except

FPL Co. Loaned an amount payable in 2 years.

Which is considered as medium-term source finance?

The finance manager must posses knowledge in the areas of accounting, finance, economics and management. TRUE

Which of the following statements is true?

150,000

97,500

External Sources Indirect Quote Loan Financing

Retained Earnings 1.2

Decision Tree Analysis Accept-Reject

dividend price minus growth approach

A positive net present value would mean that the investment proposal should be accepted. Which is an example of owner's financing? Minden Co has current assets that consist of cash: 20,000, receivables: 70,000 and inventory: 90,000. Current liabilities are 75,000. The quick ratio is is a This type of decision making applies when the projects proposed are independent from each other. The acceptance or rejection of one proposal does not affect the decision on the other proposals. Which of the following does not belong to the group?

Sell merchandise with 20% mark-up from the original price sales divided by receivables

Which of the following can increase net profit margin?

Company A and Company B have equal amount of Equity. TRUE

Company A’s ROE is 20 percent, while Company B’s ROE is 15 percent. Which of the following statements can be true? Capital asset pricing model calculates the expected return on asset based on its beta and the expected market return. This determines the amount of profit to be distributed among shareholders and amount of profit to be treated as retained earnings for financing its long term growth The expected return-beta relationship of the CAPM is represented by a Capital market line. Beta

Dividend Policy

FALSE Systematic Risk FALSE

The receivables turnover ratio is defined as

The Modigliani and Miller (MM) approach to capital structure with corporate taxes states that the use of financial leverage lowers the

Inflation mutual fund

Internal Rate of Return Personnel Management 0.055

Objective probability distribution Forward exchange rate Probability distribution Conditional probability Independent capital investment decision → Developing a new product, Preference capital investment decision → Renting or owning a facility, Initial cash outflow → Installation costs, Sustained increase in the price level of nearly all commodities → Inflation, Beta → Systematic Risk, Simpliest frm of ‘what if” analysis → Scenario analysis Foreign Direct Investment 6 days A Factoring portfolio is structured and maintained to match the investment objectives stated in its prospectus. Expected Value of perfect information TRUE

Permanent Working Capital TRUE

12.50%

certainty Eurobond

company’s cost of capital and raises the firm’s value because interest in debt is not tax deductible. Sustained increase in the price level of nearly all commodities This is an investment vehicle for investors who pool their savings for investing in diversified portfolio of securities with the aim of attractive yields and appreciation in their value. This is the discount rate that equates the present value of the expected net cash flows with the initial cash outflow Which is not a function of financial management? A BC Corp.‘s proposed project with an estimated life of 20 years and salvage value of P100,000 requires an initial investment of P 1,000,000. It will yield yearly cash inflow of P100, 000. Straight line method will be used. Probability distribution based on past results of similar events. The exchange rate at which a party to a contract agrees to receive or deliver a currency at some future date is Listing of possible events and their assigned probability. In probability of two events, if one event will occur given that the other has occurred already , it is termed Match the word/s in the right column with statements on the left.

This is an investment made by a company from one country into a company from another country. The payable turnover is equal to 60, what is the average payment period? Which statement is false? It is the amount that a firm is willing to pay in exchange for the errorless advice from a market analyst. Accounts Payables and Accruals are provided by suppliers and workers as part of the normal operations and are not included in the category of capital. This is the minimum amount of capital that must be maintained Financial break-even point is the earnings before interest and taxes level at which after paying interest on bonds, dividends on preferred shares, and income taxes, nothing is left for ordinary equity shareholders. FPL Co has sales of 500,000, operating profit of 50,000, interest expense of 10,000, tax expense of 20,000, total equity of 125,000 and total debt of 275,000. Their return on assets is: Decision-making under means that for each decision action there is only one event and only a single outcome for each action. An international bond guaranteed by an international consortium of banks.

Internal financing

Coefficient of Variation Statement of Cash Flows

In this type of financing, the business entity which has already operated may get funds internally from depreciation funds and retained earnings. It is the standard measure of the risk per unit of return.

Cost of debt

This shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities This is the amount of profit, or return, that an individual can expect based on an investment made. FPL Company owes Php20,000 to supplier A, Php30,000 to Supplier B, 50,000 to Supplier C and long-term bonds payable for 10,000. After struggling in its operations, the company ended up having Php20,000 cash on hand, Php30,000 worth of inventories, Php40,000 accounts receivable and equipment worth Php50,000. What is the long-term debt to long-term asset ratio? This is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. Business Risk is the possibility that shareholders will lose their investment in a company with debt, if the cash flows will not be sufficient to meet its financial obligations. Stennett Corp.’s CFO has proposed that the company made a new debt and used the proceeds to buy equipment. Which of the following is likely to occur if this proposal is adopted? Developing a new product is an example of a preference capital investment decision. This is the required return on investment of the lenders of a company.

Savings Promotion

Which is not included in the group

150,000

FPL Company has a net working capital of 100,000 and the company has 200,000 total liabilities of which 150,000 are long term debts. What is the gross capital? Return on sales, return on assets and return on equity are examples of

Accounting Rate of Return 0.2

Decision Tree Analysis

FALSE

Return on Assets (ROA) will decline.

FALSE

profitability ratios Rejected

All of the above

A company has a net investment of P500, 000 for one of its project and an annual cash flow of P80, 000, estimated life of the project is 5 years. FPL Company's average profit is 1,000,000 and his average investment is 450,000. What is the Accounting rate of return? Sovereign Risks include

Risky financial asset

It is an investment with a return that is not warranted.

Final Approval - Implementing - Fixing Properties Scenario analysis

Which of the following has a wrong order based on the discussion in capital budgeting process Simpliest frm of ‘what if” analysis This is the after tax cost of long-term funds through borrowing.

2.22

Cost of debt Bought merchandise on account 0.7586

FALSE

Which of the following alternatives could potentially increase current ratio? Given the following exchange rates: US$ to Swiss franc = 1.0066; US$ to Canadian $ = 1.3269. the Swiss Franc-Canadian $ exchange rate is One of the basic principles of risk management identified by ISO is that it should be used to handle certainty.

1.25

Shares

FPL Co has current assets of 180,000 (cash: 20,000, accounts receivable: 70,000, inventory: 90,000), and long-term assets that had an amount of 400,000, exclusive of accumulated depreciation worth 180,000. Sales were 500,000, and operating profit was 50,000. Tax was 20,000 and interest paid was 10,000. Their total asset turnover ratio is: Asset liquidity pertains to an easy conversion of company’s assets into cash in the event of unexpected substantial need for additional cash flow. They are the decision makers who are willing to pay more than the expected value of an investment. Which is not included in the group?

net income to gross sales ratio

Which is not included in the group?

Working Capital Management

This is essentially an accounting strategy with a focus on the maintenance of a sufficient balance between a company’s current assets and liabilities Mutually exclusive project decision are contending proposals that will give the firm positive benefits and accepting one or a combination of such projects might disregard others for consideration. Traditional and MM approaches or theories have several common assumptions including no taxes, all earnings are paid as dividends, earnings before interest and taxes is constant so with business risks. Which statement is false?

TRUE

Risk-takers investors

TRUE

TRUE

Lease may be defined as a contractual arrangement wherein the lessor makes periodic payment to the lessee. All of these

Which of the following statements is true?

borrowed funds

These funds are obtained from banks and credit unions

TRUE

In general, if the level of investment risk increases the possible returns on investment also goes up. FPL Co has sales of 500,000, net operating profit of 50,000, interest expense of 10,000, tax expense of 20,000, total equity of 125,000 and total debt of 275,000. Their return on equity in comparison to their return on assets is: This is a metric that measures the degree to which a company uses fixed income securities such as debt and preferred equity. Which statement is false?

ROA is lower than ROE

Degree of Financial Leverage Accounting records does not include the financial information of the business concern Raw materials

Customer's ability to pay

These are goods which have not yet been committed to production in a manufacturing business concern Payment of cash dividend will reduce the retained earnings at the same time will lower the company's most liquid asset. Minden Co has current assets that consist of cash: 20,000, receivables: 70,000 and inventory: 90,000. Current liabilities are 75,000. On the basis of the current ratio and the quick ratio, Minden Co is: Which does not belong to the group?

Cost of capital

This is the required rate of return on the various types of financing.

Traditional Approach

According to this approach, the mix of debt and equity capital can increase the value of the firm by reducing overall cost of capital up to certain level of debt.

TRUE adequately liquid

FALSE Php 230,000

3.40%

lease Board of Directors Capital Budgeting public deposit factoring Renting or owning a facility Temporary Working Capital 0.14

A security is undervalued if it is plotted below the Security Market Line. FPL company has machineries and equipment worth 150,000, land and building for business 1,000,000, Cash 150,000, Inventories 30,000 and accounts receivables 50,000. He also owes 200,000 to a bank. How much is the gross working capital? Selzer Inc. has a net profit after taxes worth 62,195. It has a total assets worth 3 million, with a debt-to-equity ratio of 0.64. What is the firm’s return on equity (ROE)? It is contractual agreement between the owner of the assets and user of the assets for a specific period by a periodical rent. Dividend policy are finally approved by the This is the process in which a business determines and evaluates potential expenses or investments that are large in nature. This refers to the unsecured deposits invited by companies from the people mainly to finance working capital needs. This is the selling of accounts receivable at a discount to a thirdparty funding source to raise capital. Preference capital investment decision This is the excess capital over the minimum amount of working capital that must be maintained. The following are given for the two stocks of XYZ Co.

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

Which is not an objective of inventory management?

Matching of Proposals- Performance Review Final Approval Acquiring necessary capital

TRUE

Which of the following has a wrong order based on the discussion in capital budgeting process The financial manager finds ways on how to obtain various capitalization for the business If you have a financial source that is required to be paid within four years, you have a Retained earnings are portion of the corporation's earnings not paid out as dividends but kept for possible reinvestment. The contemporary approach to capital structure management recognizes tax effects, bankruptcy costs and agency cost. XYZ Corporation plans to produce and sell Products A and B. Both products will be manufactured using the same plant. The total Fixed costs per year will remain the same at P380,000. Each product will be sold at P120 each. Variable cost is 60%. The demand for Product A is 10,000and Product B is 15,000 with a probability of 80% and 60%, respectively. Considering the probability of 80% for Product A and 60% for Product B, which will be more profitable to produce and sell? Declaration of stock dividends will change the total stockholders' equity. If the current ratio is equal to 2, and current liabilities is 100, how much is the current assets? Stock repurchase pertains to treasury shares.

Liquidity risk

The risk that securities cannot be converted quickly to cash is called

0.02

ABC Corporation’s beta is 1.6; the current rate of return on securities is 12%, estimated return of market portfolio yields 14%.

Medium-term source TRUE TRUE Product B

FALSE 200

Initial cash outflow

To maintain optimum inventory to minimize the profitability trade credit

1.3182 100,000

United States Dollar Standard deviation Acquiring necessary capital

Payback Period Savings are possible only when the business has higher expenses than its revenues. Finished Goods TRUE horizontal analysis

16.54% An increase in accounts receivable. Purchasing Power Parity Working Capital

Which is not an objective of inventory management? This is the credit extended by one trader to another for the purchase of goods and services Relative to number 4 above, the Canadian$ -Swiss Franc exchange rate is FPL Company has a total Assets worth 400,000 of which 250,000 are non current the company also has 200,000 total liabilities of which 150,000 are long term debts. What is the net working capital? The fixed exchange rate system requires all countries to set an exact parity system vis-a-vis the This is a statistical measure of the variability of a distribution around its mean. It is the square root of the . Identify the function being described: The board of directors and finance manager decided to offer stocks to the public so that they can have the resources for business expansion. This is the time required to recover the initial investment in a project. Which statement is false This is the completed products and is already final output of the production process Capital asset pricing model calculates the expected return on asset based on its beta and the expected market return. In this type of analysis you may compare figures from several years, so you are comparing the amounts in each account from the past up to the present. A corporation is issuing 10% common stock that should be sold for All else being equal, which of the following will increase a company’s current ratio? It is also called the law of one price.

Payable turnover is a liquidity ratio

This is a measure of both a company's efficiency and its short-term financial health. Which statement is false

Working capital

This fund is used for daily operations

Developing a new product

Independent capital investment decision

Long-term source

TRUE

If you have a financial source that is required to be paid within ten years, this describes XYZ Corporation plans to produce and sell Products A and B. Both products will be manufactured using the same plant. The total Fixed costs per year will remain the same at P380,000. Each product will be sold at P120 each. Variable cost is 60%. The demand for Product A is 10,000and Product B is 15,000 with a probability of 80% and 60%, respectively. The net income if Product A is chosen to be produced? The net present value method is one popular capital budgeting models wherein the cash flows are discounted at the company's cost of capital. Stock split will lower the par value of outstanding equity shares.

Online Bankng

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

venture capital

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

P 4,000

TRUE

Forecasting Financial Requirements

Accruals

Credit Terms

Financial Management

TRUE

1.11% Php 228,571,429

Financial decision will affect the entire business operation because decisions have indirect relationship with the various department functions. Current ratio Financial Statements

The financial manager must estimate, how much finances required to acquire fixed assets and forecast the amount needed to meet the working capital requirements in future. This describes Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? This is the condition under which goods are sold on credit are referred as credit terms. This basically includes credit period, cash discount and cash d...