MULTIPLE CHOICE

1. The relevance of valuation in _______________ largely depends on the investment

objectives of the investors or financial managers managing the investment portfolio.
PORTFOLIO MANAGEMENT
1. ___usually has two parties: the buying firm and the selling firm. The buying firm
needs to determine the fair value of the target company prior to offering a bid price. On
the other hand, the selling firm (or sometimes, the target company) should have a
sense of its firm value as well as to gauge reasonableness of bid offers.
Spin-off;
Divestiture;
Merger;
ACQUISITION
2. ___refer to the characteristics of an entity elated to its financial strength,
profitability, or risk appetite.
Technical characteristics; I
ntrinsic value;
FUNDAMENTALS;
Financial value
3. This refers to the value of any asset based on the assumption that there is
hypothetically complete understanding of its investment characteristics.
Fair market value;
INTRINSIC VALUE;
Going concern value;
Liquidation value.
4. This refers to the possible range of values where the real firm value lies.
Risk of the unknown;
UNCERTAINTY;
Volatility;
Solvency.
5. This pertains to how much a particular object is worth a particular set of eyes.
VALUE;
Cost;
Price;
Fundamentals
6. Valuation places great emphasis on the ___that are associated in the exercise.
Due diligence;
Human reasoning;
Professional skepticism;
PROFESSIONAL JUDGEMENT.
7. __ is particularly relevant for companies that are experiencing severe financial
distress. Going concern value;
Intrinsic value;
LIQUIDATION VALUE;
Fair market value.
8. Separating a segment or component business and transforming it into a
separate legal entity whose ownership will be transferred to shareholders.
Mergers;
Acquisitions;
SPIN-OFF;
Divestiture
9. Which key principles in valuation refers to business value tending to change
every day as transaction happens?
The value of a business is defined only at a specific portion of time;
Value varies based on the ability of the business to generate future cash flows;
Market dictates the appropriate rate of return for investors;
Firm value can be impacted by underlying net tangible assets.
10. __ tend to look for companies with good growth prospects that have poor
management. ACTIVIST INVESTORS;
Fundamental Analysts;
Chartists;
Information Traders
11. According to the CFA Institute, ____________ is the estimation of an asset's
value based on variables perceived to be related to future investment returns, on
comparisons with similar assets, or, when relevant, on estimates of immediate
liquidation proceeds.
VALUATION;
appraisal;
fundamentals;
price estimation
12. They believe that these metrics imply investor psychology and will predict future
movements in stock prices.
Information Traders;
Activist Investors;
CHARTISTS;
Fundamental Analysts
13. Value is determined under the going concern assumption.
Liquidation value;
Intrinsic value;
GOING CONCERN VALUE;
Fair market value
14. One of the major factors linked to the value of business that shows what are the
business risks involved in running the business.
EMBEDDED RISKS;
Current Operations;
Future Prospects;
All of the above
15. The value of a business can be basically liked to three major factors, except:
current operations;
future prospects;
embedded risks;
NONE OF THE ABOVE.
16. The price expressed in terms of cash equivalents, at which property would
change hands between a hypothetical willing and able buyer and a hypothetical willing
and able seller, acting at arm's length in an open and unrestricted market, when neither
is under compulsion to buy or sell and when both have reasonable knowledge of the
relevant facts.
FAIR MARKET VALUE;
Going concern value;
Intrinsic Value;
Liquidation value
17. These are persons who are interested in understanding and measuring the
intrinsic value of a firm.
Chartists;
FUNDAMENTAL ANALYSTS;
Information Traders;
Activist Investors
18. One major factor linked to the value of business that shows how is the operating
performance of the firm in the recent year.
CURRENT OPERATIONS;
Future prospects;
Embedded risks;
All of the above.
19. One of the major factors linked to the value of business that reflects is the long-
term and strategic decision of the company.
Current operations;
FUTURE PROSPECTS;
All of the above;
Embedded risks.
20. Sale of a major component or segment of a business (e.g. brand or product line)
to another company is called:
spin-off;
DIVESTITURE;
mergers;
acquisitions.
21. Under portfolio management, the following activities can be performed through
the use of valuation techniques, except:
Stock Selection;
Deducing Market Expectation;
BOTH CAN BE PERFORMED;
None of the above.

22. __ deals with prioritizing and distributing financial resources to activities that
increases firm value by appropriate planning and implementation of resources, while
balancing profitability and risk appetite.
Financial Management;
Portfolio Management;
Risk Management;
FINANCE
23. Which key principles in valuation refers to general concepts for most valuation
techniques put emphasis on future cash flows except for some circumstances where
value can be better derived from asset liquidation?
The value of a business is defined only at a specific point in time;
Market dictates the appropriate rate of return for investors;
Firm value can be impacted by underlying net tangible assets;
Value varies based on the ability of business to generate future cash flows.
24. General term which describes the transaction of two companies combined to
form a wholly new entity.
Divestiture;
Acquisitions;
MERGERS;
Spin-off
25. Acquisition of another business by using significant debt which uses the
acquired business as a collateral.
LEVERAGED BUY-OUT;
Acquisitions;
Divestiture.
26. __ assumes that the combined value of two firms will be greater than the sum of
separate firms. ___ can be attributable to more efficient operations, cost reductions,
increased revenues, combined products/markets or cross-disciplinary talents of the
combined organization. SYNERGY;
Volatility;
Uncertainty;
Control
27. The underlying belief is that ____________ are more adept in guessing or
getting new information about firs and they can predict how the market will react based
on this.
Hence, ____________ correlate value and how information will affect this value.
Chartists;
Activist Investors;
Fundamental Analysts;
INFORMATION TRADERS
28. Generally, the valuation process considers these steps, except:
understanding the business;
forecasting financial performance;
preparing valuation model based on forecasts;
NONE OF THE ABOVE.
29. Which key principles in valuation refers to market forces are constantly changing
and they normally provide guidance of what rate of return should investors expect from
different investment vehicles in the market?

Firm value can be impacted by underlying net tangible assets;

Value varies based on the ability of business to generate future cash flows;

The value of a business is defined only at a specific point in time;

Market dictates the appropriate rate of return for investors.

1. This represents the value of the company in perpetuity or in a going concern
environment. * 1 point
Salvage value.
Infinity value.
Perpetuity value.
Terminal value.
2. These are business opportunities which are those business that has a long-
term into infinite operational period. * 1 point
Going Concern Business
Opportunities
Stable Business Opportunities
Strategic Business Opportunities
Perpetual Business Opportunities
3. These are the amounts of cash available for distribution to both debt and
equity claim from the business or asset. * 1 point
Investing Cash Flows.
Financing Cash Flows.
Operating Cash
Flows. Net Cash
Flows.
4. There are two levels of net cash flows, these are: *
Net cash flows to the firm and net cash flows to
equity.
net cash flows to the firm and net cash flows to
creditors. net cash flows to the creditors and net cash
flows to equity. none of the above, since there are three
levels of net cash flows.
5. This represents the amount of cash made available to the equity stockholders after
deducting the net debt or the outstanding liabilities to the creditors less available cash
balance of the company. * 1 point
Net Cash Flows to the Firm
Net Cash Flows to Creditors
Net Cash Flows to Equity
Operating Cash Flows
6. These are investments which are already in the going concern state, as most
business are in the optimistic perspective that they will grow in the future.
Brown Field Investment
Green Field Investment
Black Field Investment
Blue Field Investment
7. DCF Analysis is most applicable to use when the following are available, except *
Cash flow pricing multiples.
new quantifiable information.
reasonable appropriated cost of capital or required rate
of return.
validated operational and financial information.

8. This has been defined by the industry as transactions that would yield future
economic benefits as a result of past transactions.
Asset
Net Assets
Share of Stocks
Equity

9. This represents the cash flows which was described in the preceding paragraph.
This is the amount made available to both debt and equity claims against the
company. *
Operating Cash Flows
Net Cash Flows to the Firm
Net Cash Flows to Equity
Net Cash Flows to Creditors
10. The beauty if GCBOs is that we already have a reference for their performance
either on similar nature of business or from its historical performance. With this, the risk
indicators can be identified easily and therefore can be quantified accordingly. The
Committee of Sponsoring Organization of the Treadway Commission (COSO) suggest
that risks management principles must be observed as well in doing business and
determining its value. It was noted in their report that the benefits of having a sound
Enterprise-wide Risk Management allows for the company as follows, except
Decrease the opportunities with risk being managed well.
improve management and distribution of resources across the enterprise.
facilitates the management and identification of the risk factors that affect
the business. make the business more resilient to abrupt changes.
11. Malaysia Inc. purchased a capital expenditure amounting to PHP 1,500 and
reported revenue of PHP 125,000 and operating expenses is PHP 50,000. The
company incurred PHP 500 for interest. If the depreciation is PHP 5,000, how much
is the net cash flows? * 2 points
PHP 75,000
PHP 52,150
PHP 56,150
PHP 57,650
12. Uranus Co. Ltd reported net income of PHP 2,750 while 8 years ago, net income
was PHP 2,000 only.
How much is the compounded annualized growth rate? *
2 points
4.65%
5.25%
5.65%
4.56%
13. Green Tea Corp. reported the following information: Revenue - PHP 32,500;
Operating Expenses - PHP
16,250. Included in the operating expense are salaries and wages of PHP 1,450,
depreciation of PHP 500, and rentals of PHP 275. The interest expense incurred is
PHP 200. How much is the EBITDA for the period? * 2 points
PHP 14,025
PHP 16,750
PHP 16,550
PHP 16,250
14. The management accountant of Yza Belle Inc., has calculated their book value per
share at PHP 6.25. If Yza Belle's shares will be sold using the average book to market
ratio for the industry similar to the company of 0.68, the price per share would be at
least * 2 points
PHP 9.90
PHP 10.00
PHP 4.25
PHP 6.25
15. Leone Inc., a listed corporation, reported on its Statement of Financial Position total
assets of PHP 85 Million. The company maintain its debt ratio of 70% and have
outstanding capital stocks of PHP 1 Million. Given their performance and financial
stability, their stocks were traded at PHP 30 per share.
Based on the foregoing, the book to market ratio of Leone
Inc., is * 2 points
0.85
0.90
0.95
1.00
16. Cornerstone Inc., reported revenue for the period amounting to PHP 75,200 and
EBITDA Margin of
60%. How much is the operating expenses excluding
depreciation? * 2 points
PHP 0
PHP 45,120
PHP 30,080
PHP 75,200
17. Pluto Corp., a listed company, sells its share in the stock market at PHP 13.50 per
share with EPS of
PHP 2.50. Based on the foregoing, how much is the
P/E Ratio? * 2 points
2.50
3.50
5.00
5.40
18. If Jupiter Inc.'s market value per share is PHP 275 Million, and the EPS it
generated is PHP 12.50, what is the P/E Ratio? * 2 points
PHP 12.50
PHP 20.00
PHP 27.50
PHP 32.80

275M / 12.50 = PHP22.00

19. Singapore Ltd., has reported PHP 125,000 revenue where their EBITDA Margin is
45%. If the taxes are
30% of the EBITDA and the capital expenditure was purchased at PHP 1,500, how
much is the Net Cash
Flows? *
2 points
PHP 46,625
PHP 37,875
PHP 39,375
PHP 56,250
20. Sunflower Inc., provided the following information: EPS is PHP 25 while P/E
Multiple is 2.0. How much is market value per share? * 2 points
PHP 48.00
PHP 55.00
PHP 50.75
PHP 50.00
1. These are situations when a company will most like consider liquidation
value, except
Corporate End of Life
Divestment
Depletion of Scarce Resources
Business Failures

2. This represents the net amount that can be gathered if the business is shut down
and its assets are sold piecemeal.
Bankruptcy value
Going concern value
Closing value
Liquidation value

3. Which statement is not correct about liquidation value? *

In some texts, liquidation value is known as business closing value.
Liquidation value may continue to erode based on the time frame available for
liquidating assets.
Liquidation value refers to the value of a company if it were dissolved and its assets are
sold individually.
If liquidation value becomes higher compared against going concern value, this may
signal

4. Which of the following is not correct in relation to liquidation value? *

Liquidation value must be used if the business continuity is dependent on current
management that will not stay.
If the nature of the business implies limited lifetime, the terminal value must be based
on liquidation. All costs necessary to close the operations should also be factored in
and deducted to arrive at the liquidation value.
Non-operating assets should be valued by liquidation method as the market value
reduced by costs of sale and taxes. Since they are not part of the firm's operating
activities, it might be inappropriate to use the same going concern value technique used
for business operations. If such result is higher than net present value of cash flows
from operating the asset, the liquidation value should be used.
If the liquidation value is below income approach valuation (based on going
concern principle) and liquidation comes into consideration, liquidation value
should be used.
5. Which of the following is incorrect statement related to the use of Liquidation Value in
Investment Analysis?
If the company can be readily liquidated any time, market price per share should never
be below book value per share if all reported assets in the balance sheet is accurate.
When liquidation value is lower than market price of share, these corporate
investors buy the shares at prevailing market price and sell the company at the
higher liquidation value.
Liquidation value method can also be used as benchmark in making investment
decisions.
For firms that experiencing decline or industry is consistently declining, prevailing share
prices might be lower than liquidation value.

6. Liquidation is done immediately especially if creditors have sued or a bankruptcy is

filed. Assets are sold in the market at the soonest time possible which result in lower
prices because of the rush sale. This ultimately drives down liquidation value.
Forced Liquidation
Divestment
Bankruptcy
Orderly Liquidation

7. Liquidation process, at which the asset or assets are sold as quickly as possible,
such as at an auction
Forced Liquidation
Divestment
Bankruptcy
Orderly Liquidation
8. Assets are sold strategically over an orderly period to attract and generate the
most money for the assets.
Bankruptcy
Forced Liquidation
Divestment
Orderly Liquidation

9. This liquidation process will expose assets for sale on the open market, with a
reasonable time allowed to find a purchaser, both buyer and seller having knowledge of
the uses and purposes to which the asset is adapted and for which it is capable of being
used, the seller being compelled to sell and the buyer being willing, but not compelled,
to buy.
Forced Liquidation
Divestment
Bankruptcy
Orderly Liquidation
10. Which of the following statements is incorrect? *
1 point
Liquidation value can be obtained based on the costs recorded in the books.

Calculation for liquidation value at closure date is somewhat like the book value
calculation, except the value assumes a forced or orderly liquidation of assets instead of
book value.
Determining the type of liquidation that will occur is important because it will affect the
costs connected with liquidation of the property, including commissions for those
facilitating the liquidation and taxes at the end of the transaction.
In practice, the liabilities of the business are deducted from the liquidation value of the
assets at closure to determine the liquidation value of the business.

PROBLEMS:
11. The PQ Partnership is not going well and the partners have decided to liquidate the
business. The partners share income and loss ratio is 2:1. PQ Partnership reported
cash of 50,000 and building valued at 800,000. They owe 500,000 to various current
prices. How much is the liquidation value of PQ Partnership? *
2 points
650,000
850,000
150,000
350,000

50,000 + 800,000 = 850,000 – 500,000 = 350,000

11. Magic Homes is to be liquidated. All creditors, both secured and unsecured, are
owed 2 million. Administrative costs of liquidation and wages payments are expected
to be 500,000. A sale of asset is expected to bring 3 million after all costs and taxes.
What is the liquidation value of Magic Homes? * 2 points
1,000,000
500,000
2,000,000
3,000,000

12. Kristine, a shareholder, received a 10 per share as liquidation value as for the
1,000,000 shares of Cathy Company that she owned. Kristine owned 10% ownership
stake in Cathy Company. How much was the liquidation value of the Company? * 2
points
10 million
50 million
100 million
124 million

13. A firm reported current assets of 1,000,000, which can be liquidated at 80% of book
value. Total liabilities, including preferred stock, equal 270,000. The firm has 20,000
shares of common stock outstanding. What is the liquidation value per share of
common stock? *
2 points
40.00
26.50
50.00
36.50
800,000 – 270,000 = 530,000
530,000 / 20,000 = 26.50

14. At year-end, Lysle Company balance sheet showed total assets of 50 million, total
liabilities of 30 million, and 500,000 shares of ordinary shares outstanding. If Lysle could
sell its assets for 40 million, Lysle liquidation value per share of ordinary share is *
2 points
5.00
40.00
10.00
20.00
MULTIPLE CHOICE THEORIES. Write the letter of the correct answer before the
number of the question or statement being answered.
1. They tend to look for companies with good growth
prospects that have poor management. a.) Chartists
b.) Information Traders
c.) Fundamental Analysts

d.) Activist Investors

2. Acquisition of another business by using significant debt which uses
the acquired business as a collateral. a.) Mergers
b.) Acquisitions

c.) Leveraged Buy-out

d.) Divestiture

3. _________ assumes that the combined value of two firms will be

greater than the sum of separate firms. _________ can be
attributable to more efficient operations, cost reductions, increased
revenues, combined products or markets or cross-disciplinary
talents of the combined organization. a.) Stock selection

b.) Synergy and Control

c.) Deducing market expectation
d.) Synergy and stock selection

4. One major factor linked to the value of business that reflects what is long-
term and strategic decision of the company.
a.) Current operations
b.) Embedded risks

c.) Future prospects

d.) All of the above

5. The following described the benefits of having a

sound Enterprise-wide Risk Management system
except: a.) Facilitates estimation of all business
risk
 b.) Manage performance variability
c.) Increase the opportunities
d.) Create cost-efficient opportunities
6. The factors that affect the replacement value of an
asset are the following except: a.) Asset age

b.) Original acquisition cost of the asset

c.) Size of the asset
d.) Competitive advantage of the asset

7. Reproduction value is the

a.) Cost of similar assets that have the nearest
equivalent value as of the valuation date b.) Salvage
value of the asset

c.) Estimate cost of reproducing, creating, developing or

manufacturing a similar asset internally
d.) Net value reflected in the company’s financial statements

8. It represents the net amount that can be gathered if the business is shut
down and its assets are sold piecemeal. a.) Closing value
b.) Exit value
c.) Dissolution value

d.) Liquidation value

9. These are situations that most likely
consider liquidation value, except: a.)
Business failures

b.) Divestment
c.) Corporate end of life
d.) Depletion of scarce resources

10. The developer of Bird in hand theory

a.) William Goetzman
 b.) Michael Porter and Gordon Ramsey

c.) Myron Gordon and John Lintner

d.) Franco Modigliani and Merton Miller

11. This is the amount that is added to the value of the

firm in order to gain control of it. a.) Equity accretion
b.) Earnings accretion
c.) Additional paid in capital

d.) Equity control premium

12. In capitalization of earnings method, these types of assets are not part of
the computation hence need to be added to the Capitalized Earnings. a.)
Fixed assets

b.) Idle assets

c.) Current assets
d.) Noncurrent assets

13. Statement 1: The other factors that linked to a value of business are quick
turnover of technologies and rapid globalization.
Statement 2: Intrinsic value can be the market price of the stock.
Statement 3: WACC may also include other sources of financing like
preferred stock and retained earnings. a.) Statement 1 is true;
Statement 2 and 3 is false
b.) Statement 1 and 2 is true; Statement 3 is false

c.) All of the statements are true

d.) All of the statements are false
14. SM Investments Corp (SMIC) in March 2017 acquired 34.5%
stake in 2GO. This is an example of a.) Merger

b.) Acquisition
c.) Spin-off
d.) Divestiture
15. All are corporate strategies to achieve competitive advantage, except:

a.) Economies of scale

b.) Differentiation
c.) Cost leadership
d.) Focus

16. It ensures that financial outcomes and corporate strategy

drives maximization of firm value. a.) Analysis of
transaction deals
b.) Legal and tax purposes

c.) Corporate finance

d.) Portfolio management

17. Statement 1: Invested Capital represents the cumulative amount the

business has invested in its core operations— primarily property, plant,
and equipment and working capital. Statement 2: Return of investment are
the earnings.
Statement 3: Free cash flow’s formula is Net Income
after tax less the net investment. a.) Statement 1
TRUE; Statement 2 FALSE; Statement 3 FALSE
b.) Statement 1 FALSE; Statement 2 FALSE; Statement 3 TRUE
c.) Statement 1 FALSE; Statement 2 TRUE; Statement 3 FALSE

d.) Statement 1 TRUE; Statement 2 FALSE; Statement

3 TRUE

18. Company’s growth and ROIC are a measure of

a.) Position

b.) Performance
c.) Growth
d.) Earnings

19. Low-ROIC companies will generate relatively more value by

focusing on increasing their _____. a.) Growth
 b.) Return of investment

c.) Return on investment

d.) Earnings

20. The spread between the return on invested capital and the cost of capital
times the amount of invested capital. a.) Economic value added

b.) Economic profit

c.) Profit
d.) Economic sales

PROBLEMS (2.5 points each)

MULTIPLE CHOICE PROBLEM. Write the letter of the best answer before the number
of the question or statement being answered.
1. The following information was reported by Benedict Co. in their financial
statements.

Current Assets Php250,000

Non-current Assets 760,000
Current Liabilities 60,000
Non-current Liabilities 350,000
How much is the book value of Benedict Co.? a) Php190,000

b) Php600,000
c) Php660,000
d) Php1,010,000

2. Grace, a financial analyst, is looking at the 2020 financial statements of

ACE Company and gathered the following details:
Cash Php310,000
Receivables 320,000
Inventory 200,000
 Property, Plant and Equipment 690,000
Accounts Payable 175,000
Long-term Notes Payable 500,000
Ordinary Share Capital (250,000 312,500
outstanding shares, P1.25 par)
Retained Earnings 532,500
There are no other issuance or buyback of shares in 2019. How much is the
book value per share of ACE Company. a) Php6.08

b) Php3.38
c) Php2.18
d) Php1.25

3. Macaroni Inc. showed the following balances in its financial statements for
2021.
Current Assets 510,000
Non-current Assets 1,065,000
Current Liabilities 355,000
Non-current Liabilities 1,000,000
Outstanding ordinary shares 500,000
What is the book value per share of Macaroni Inc.?

a) Php0.44
b) Php1.15
c) Php3.15
d) Php5.86

4. According to records of Hershey Company showed the following items as of

December 31:

Current Assets Php 950,000

Non-current Assets 600,000
Current Liabilities 3,500,000
Non-current Liabilities 2,000,000
Outstanding ordinary shares January 1 400,000
Outstanding ordinary shares December 31 500,000
On July 1, Hershey company issued additional 100,000 ordinary shares to
funds its investment plan. How much is the book value of Hershey
Company as of December 31?
a) Php(4,450,000)
 b) Php(3,950,000)
c) Php(2,450,000)
d) Php1,850,000

5. The following information are related to Bacon Corporation:

Sales Php 15,000,000
Asset Turnover 3.0x
Debt to Equity Ratio 1.5
Weighted average outstanding shares 200,000
shares
Asset turnover only considered asset balance as of December 31. How
much is the book value per share of Bacon Corporation based on the
foregoing information.
a) Php75.00
b) Php25.00
c) Php15.00

d) Php10.00
6. As of December 31, 2020, V Corporation reported the following items in its
balance sheet:

Cash Php 240,000

Receivables 520,000
Inventory 350,000
Property and Plant 3,000,000
Equipment 850,000
Accounts Payable 400,000
Short-term notes payable 500,000
Long-term debt 1,000,000

Weighted Average of outstanding shares in 250,000 2020

V Corporation contracted with a third-part appraiser to determine how
much replacement cost of its assets. Based on the report of the appraiser,
The property and plant have replacement cost of 125% of its reported
value. On the other hand, the equipment only commands replacement
costs of 70% of its value. According to the appraiser. The equipment was
designed using an old technology thus lower replacement cost, other
assets and liabilities are valued fairly.
 How much is the non-current asset reflected in the books of
V Corporation as of Dec 31,2020?
a) Php4,960,000

b) Php3,850,000
c) Php2,860,000
d) Php2,150,000

7. How much is the book value per share of V

Corporation as of December 31, 2020? a)
Php19.84
b) Php16.24
c) Php15.84

d) Php12.24
8. How much is the replacement value of the non-
current assets of V Corporation? a)
Php3,345,000
b) Php3,850,000

c) Php4,345,000
d) Php5,455,000

9. How much is the replacement value per share of V Corporation?

a) Php21.82
b) Php19.84

c) Php14.22
d) Php12.24

10. Heinz Inc expects to generate earnings over the next five years of Php
50,000.00; Php 60,000.00; Php 65,000.00; Php 70,000.00; and Php
75,000.00. Using the Capitalization of Earnings Method, what is the
estimated value of the firm using 10.00% required rate of return.

a) Php 640,000.00
b) Php 657,378.72
c) Php 657,738.72
 d) Php 604,000.00

11. Heinz Inc expects to generate earnings over the next five years of Php
50,000.00; Php 60,000.00; Php 65,000.00; Php 70,000.00; and Php
75,000.00. Using the Capitalization of Earnings Method, what is the
estimated value of the firm using 8.00% required rate of return.
a) Php 600,000.00

b) Php 800,000.00
c) Php 500,000.00
d) Php 700,000.00

12. Ernesto, Inc has projected average earnings every year of Php
100,000,000. Debt to Equity Ratio is 3:1 After tax cost of debt is 5% while
the cost of equity is 10%. The Board of Directors of the company decided
to sell the company for 1,000,000,000 computes for the Economic Value
Added (EVA).

a) Php 37,500,000.00
b) Php 50,000,000.00
c) Php 0
d) Php 25,000,000.00

13. Using Weighted Average Cost of Capital (WACC) ignoring taxes

compute the cost of capital of a company with debt ratio of 0.75:1 and is
paying yearly average interest for its loans of 4% and dividend rate of 5%
yearly. a) 4.00%

b) 4.25%
c) 4.5%
d) 5.00%

14. Using capital Asset Pricing Method (CAPM) compute for the cost of capital
(equity) with risk free rate of 5%, market return of 12% and Beta of 1.3.
a) 14.01%

b) 14.10%
c) 14.00%
d) 14.11%
15. Using capital Asset Pricing Method (CAPM) compute for the cost of
capital (equity) with risk free rate of 4%, market return of 8% and Beta of
1.5.

a) 10.00%
b) 11.00%
c) 12.00%
d) 13.00%

16. With risk-free rate of 5% Beta of 1.5, Market return of 8% prevailing credit
spread of 3%, tax rate of 30% and Equity ratio of 30% compute for the
weighted average cost of capital.
a) 6.00%

b) 6.77%
c) 7.00%
d) 7.77%

17. With risk-free rate of 6%, Beta of 1.5, market return of 8%, prevailing credit
spread of 3% and equity ratio of 30% Using CAPM method compute for
the cost of equity.

a) 9.00%
b) 6.77%
c) 8.00%
d) 8.77%

18. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,
market return of 8% prevailing credit spread of 3% tax rate of 30%
and Equity ratio of 30%, compute for the volatility of stocks or beta. a)
1.00%
b) 1.25%

c) 1.50%
d) 1.75%

19. The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%,
market return of 8% prevailing credit spread of 3% tax rate of 30%
and Equity ratio of 30%, compute for the after-tax cost of debt. a)
4.90%
b) 5.00%
c) 7.00%
 d) 10.00%

20. SPPE Corp is planning to expand, and new projects is expecting to

earn an average of Php375,000 annually. If the project requires for
Php5,000,000 investment at 10% cost of capital. Compute for the
Economic value added. a) Php 125,000.00

b) (Php 125,000.00)
c) Php 875,000.00
d) (Php 875,000.00)