Batch 6 MS 4th Monthly Assessment

1) ________ is concerned with design and delivery of advice and financial products to individuals,
businesses, and governments.
A) Managerial finance
B) Auditing services
C) Financial services
D) Cost accounting

2) Managerial finance ________.

A) involves tasks such as budgeting, financial forecasting, cash management, and funds procurement
B) involves the design and delivery of advice and financial products

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C) recognizes funds on an accrual basis
D) devotes the majority of its attention to the collection and presentation of financial data

3) Wealth maximization as the goal of a firm implies enhancing the wealth of ________.

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A) the auditors
B) the creditors
C) the federal reserve

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D) the firm's stockholders

4) An ethics program is expected to have ________ impact on a firm's share price.

A) a positive
B) a negative
C) no impact
D) an unpredictable
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5) Which of the following is true of cash flows and risk?
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A) Low cash flow and low risk result in an increase in share price.
B) High cash flow and low risk result in an increase in share price.
C) High cash flow and high risk result in an increase in share price.
D) Lo cash flow and high risk result in an increase in share price.

6) Which of the following is the responsibility of a finance manager?

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A) processing purchase orders and invoices

B) ensuring accounts payable are paid on time
C) preparing the monthly income statement
D) analyzing the capital needs of the firm
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7) As a key participant in financial transactions, individuals are ________.

A) net demanders of funds because they save more money than they borrow
B) net users of funds because they save less money than they borrow
C) net suppliers of funds because they save more money than they borrow
D) net purchasers of funds because they save more money than they borrow
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8) Which of the following serves as an intermediary channeling the savings of individuals, businesses,
and governments into loans and investments?
A) financial institutions
B) financial markets
C) Securities and Exchange Commission
D) OTC market
9) The sale of a new security directly to an investor or a group of investors is called ________.
A) arbitraging
B) short selling
C) a capital market transaction
D) a private placement

10) Which of the following provides savers with a secure place to invest funds and offer both individuals
and companies loans to finance investments?
A) investment banks
B) securities exchanges
C) mutual funds

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D) commercial banks

11) The goal of working capital management is to ________.

A) achieve a balance between short-term and long-term liabilities so that they add to the achievement of

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a firm's overall goals
B) achieve a balance between a firm's non-current assets and non-current liabilities
C) achieve a balance between profitability and risk that contributes positively to a firm's value

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D) achieve a balance between short-term and long-term assets so that they add to the achievement of a
firm's overall goals

12) A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days
to 45 days. This will result in a/an ________.
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A) decrease of 30 days in the cash conversion cycle
B) increase of 15 days in the cash conversion cycle
C) decrease of 15 days in the cash conversion cycle
D) increase of 30 days in the cash conversion cycle
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13) A firm with highly unpredictable sales revenue would best choose ________ funding strategy to
minimize risk.
A) the aggressive
B) the conservative
C) the trade-off
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D) a seasonal

14) The ________ financing strategy requires a firm to pay interest on excess funds borrowed but not
needed throughout the entire year.
A) aggressive
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B) conservative
C) permanent
D) seasonal

15) The Steel Works, Inc. is required to carry a minimum of 40 days' raw steel, which is 250 tons. It takes
15 days between order and delivery. At what level of steel would Steel Works reorder?
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A) 3,750 tons
B) 600 tons
C) 667 tons
D) 344 tons
16) The General Chemical Company uses 150,000 gallons of hydro chloric acid per month. The cost of
carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is
P150 per order. The firm uses the chemical at a constant rate throughout the year. The chemical's
economic order quantity is ________.
A) 32,863 gallons
B) 11,619 gallons
C) 9,487 gallons
D) 1,900 gallons

17) A firm is considering relaxing credit standards, which will result in annual sales increasing from P1.5
million to P1.75 million, the cost of annual sales increasing from P1,000,000 to P1,125,000, and the
average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1

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percent of sales to 1.5 percent of sales. The firm's required return on investments is 20 percent. The
firm's cost of marginal investment in accounts receivable is ________. (Assume a 360-day year.)
A) P5,556
B) P9,944

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C) P12,153
D) P152,778

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18) ________ float is the time that elapses between the deposit of a check by the payee and the actual
availability of funds.
A) Mail
B) Processing
C) Clearing
D) Disbursement R
19) The cost of giving up a cash discount on a credit purchase is ________.
A) added on to the price of the goods in order to make payment quickly
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B) deducted from the price of the goods in order to make payment quickly
C) the implied interest rate paid in order to delay payment for an additional number of days
D) the true purchase price of the goods

20) A firm is offered credit terms of 2/10 net 45 by most of its suppliers but frequently does not have the
cash available to take the discount. The firm has a credit line available at a local bank at an interest rate
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of 12 percent. The firm should ________.

A) give up the cash discount, financing the purchase with the line of credit
B) take the cash discount and pay on the 45th day after the date of sale
C) take the cash discount and pay on the first day of the cash discount period
D) take the cash discount, financing the purchase with the line of credit, the cheaper source of funds
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21) A bank lends a firm P1,000,000 for one year at 12 percent on a discounted basis and requires
compensating balances of 10 percent of the face value of the loan. The effective annual interest rate
associated with this loan is ________.
A) 12 percent
B) 13.3 percent
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C) 13.6 percent
D) 15.4 percent

22) In a revolving credit agreement, the firm pays interest on ________.

A) the full line of credit
B) the unused portion of the line of credit
C) the amount actually borrowed and compensating balance
D) the amount actually borrowed and commitment fees on any unused portion of the loan
23) The initial impact of increasing the use of debt is to:
A) lower the cost of capital
B) lower the weight of the debt component
C) increase the cost of capital
D) lower the cost of retained earnings

24) Ningbo Shipping has common stock with a market price of P25 per share and an expected dividend
of P2 per share at the end of the coming year. The growth rate in dividends has been 5 percent and this
growth is expected to continue indefinitely. Based on this information, the cost of the firm's common stock
equity is
A) 5%.
B) 8%.

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C) 10%.
D) 13%.

25) What is Ningbo Shipping’s WACC if it’s after tax cost of debt is 3.5%, it’s cost of retained earnings is

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14%, and the firm’s market value of debt is P40 million while the market value of its equity is P60 million?
A) 9.8%.
B) 3.5%.

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C) 11.8%.
D) 14.7%.

26) Ningbo Shipping, which has an average tax rate of 40 percent, would like to estimate the after-tax
cost of debt for a 15-year, 12 percent, P1,000 par value bond, selling at P950. Based on this information,
the after-tax cost of debt is:
A) 7.7%.
B) 12.0%.
C) 12.8%.
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D) 15%.

27) The management of Lanzilotta Corporation is considering a project that would require an investment
of P263,000 and would last for 8 years. The annual net operating income from the project would be
P66,000, which includes depreciation of P31,000. The scrap value of the project's assets at the end of the
project would be P15,000. The cash inflows occur evenly throughout the year. The payback period of the
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project is closest to (Ignore income taxes.):

A) 3.8 years
B) 2.6 years
C) 2.7 years
D) 4.0 years
EO

28) Jark Corporation has invested in a machine that cost P60,000, that has a useful life of six years, and
that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-
line method, based on its useful life. It will have a payback period of four years. Given these data, the
simple rate of return on the machine is closest to (Ignore income taxes.):
A) 8.3%
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B) 7.2%
C) 9.5%
D) 25%
29) Parks Corporation is considering an investment proposal in which a working capital investment of
P10,000 would be required. The investment would provide cash inflows of P2,000 per year for six years.
The working capital would be released for use elsewhere when the project is completed. If the company's
discount rate is 10%, the investment's net present value is closest to:
A) P1,290
B) P(1,290)
C) P2,000
D) P4,350

30) Respass Corporation has provided the following data concerning an investment project that it is
considering:
Initial investment P160,000

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Annual cash flow P54,000 per year
Salvage value at the end of the project P11,000
Expected life of the project 4 years
Discount rate 15 %

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A) P67,000
B) P160,516
C) P516

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D) P(5,776)

31) Charlie Corporation is considering buying a new donut maker. This machine will replace an old donut
maker that still has a useful life of 6 years. The new machine will cost P3,600 a year to operate, as
opposed to the old machine, which costs P3,800 per year to operate. Also, because of increased
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capacity, an additional 20,000 donuts a year can be produced. The company makes a contribution margin
of P0.10 per donut. The old machine can be sold for P7,000 and the new machine costs P30,000. The
incremental annual net cash inflows provided by the new machine would be (Ignore income taxes.):
A) P2,200
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B) P200
C) P2,000
D) P5,000

32) Anthony operates a part time auto repair service. He estimates that a new diagnostic computer
system will result in increased cash inflows of P1,500 in Year 1, P2,100 in Year 2, and P3,200 in Year 3. If
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Anthony's required rate of return is 10%, then the most he would be willing to pay for the new diagnostic
computer system would be:
A) P4,599
B) P5,501
C) P5,638
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D) P5,107

33) Highpoint, Inc., is considering investing in automated equipment with a ten-year useful life. Managers
at Highpoint have estimated the cash flows associated with the tangible costs and benefits of automation,
but have been unable to estimate the cash flows associated with the intangible benefits. Using the
company's 12% required rate of return, the net present value of the cash flows associated with just the
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tangible costs and benefits is a negative P282,500. How large would the annual net cash inflows from the
intangible benefits have to be to make this a financially acceptable investment?
A) P20,000
B) P28,250
C) P35,000
D) P50,000
34) Crockin Corporation is considering a machine that will save P9,000 a year in cash operating costs
each year for the next six years. At the end of six years it would have no salvage value. If this machine
costs P33,165 now, the machine's internal rate of return is closest to:
A) 16%
B) 17%
C) 18%
D) 19%

35) The management of Hibert Corporation is considering three investment projects-W, X, and Y. Project
W would require an investment of P21,000, Project X of P66,000, and Project Y of P95,000. The present
value of the cash inflows would be P22,470 for Project W, P73,920 for Project X, and P98,800 for Project
Y.

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Rank the projects from most profitable to least profitable.
A) Y, W, X
B) X, Y, W
C) X, W, Y

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D) W, Y, X

36) ________ projects have the same function; the acceptance of one ________ the others from

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consideration.
A) Capital; eliminates
B) Independent; does not eliminate
C) Mutually exclusive; eliminates
D) Replacement; eliminates
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37) Natasha bought 100 shares of Cisco Systems stock for P30.00 per share on January 1, 20x3. He
received a dividend of P2.00 per share at the end of 20x3 and P3.00 per share at the end of 20x4. At the
end of 20x5, Natasha collected a dividend of P4.00 per share and sold his stock for P33.00 per share.
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What was Natasha's realized holding period return?
A) -40%
B) +40%
C) -36.36%
D) +36.36%
C

38) The expected value, standard deviation of returns, and coefficient of variation for asset A are
________. (See below.)
Asset A
Possible Outcomes Probability Returns (%)
Pessimistic 25% 5
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Most likely 55% 10

Optimistic 20% 13
A) 10 percent, 8 percent, and 1.25, respectively
B) 9.33 percent, 8 percent, and 2.15, respectively
C) 9.35 percent, 4.68 percent, and 2.00, respectively
D) 9.35 percent, 2.76 percent, and 0.295, respectively
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39) An investment advisor has recommended a P50,000 portfolio containing assets R, J, and K; P25,000
will be invested in asset R, with an expected annual return of 12 percent; P10,000 will be invested in
asset J, with an expected annual return of 18 percent; and P15,000 will be invested in asset K, with an
expected annual return of 8 percent. The expected annual return of this portfolio is ________.
A) 12.67%
B) 12.00%
C) 10.00%
D) 11.78%
40) Combining two assets having perfectly positively correlated returns will result in the creation of a
portfolio with an overall risk that ________.
A) remains unchanged
B) decreases to a level below that of either asset
C) increases to a level above that of either asset
D) lies between the asset with the higher risk and the asset with the lower risk

41) The quantity of output a competitive firm can supply at any price is determined in part by
A) Average household income.
B) Consumer tastes and preferences.
C) Input prices.
D) The distribution of income among households.

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42) If the elasticity of demand for a normal good is estimated to be 1.5, a 10% reduction in its price would
cause

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A) Total revenue to fall by 10%.
B) Total revenue to fall by 15%.
C) Quantity demanded to rise by 15%.

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D) Demand to decrease by 10%.

43) If the average household income increases and there is relatively little change in the price of a normal
good, then the
A) Supply curve will shift to the left.

C) Demand will shift to the left.

D) Demand curve will shift to the right.
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B) Quantity demanded will move farther down the demand curve.
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44) When making a decision to increase the robotic automation equipment in an existing facility, a firm
takes all of the following into consideration except
A) Economies of scale.
B) Opportunity cost.
C) Technological efficiency.
D) The initial cost of the current facility.
C

45) An improvement in technology that in turn leads to improved worker productivity would most likely
result in
A) A shift to the right in the supply curve and a lowering of the price of the output.
B) A shift to the left in the supply curve and a lowering of the price of the output.
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C) An increase in the price of the output if demand is unchanged.

D) Wage increases.

46) During a recession the goal of government fiscal policy is to raise equilibrium output from P30 trillion
to P35 trillion. An appropriate governmental action in this situation would be to
A) Decrease government spending.
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B) Increase government taxes.

C) Increase government spending.
D) Increase government taxes and decrease government spending by equal amounts.

47) Economists and economic policy makers are interested in the multiplier effect because the multiplier
explains why
A) A small change in investment can have a much larger impact on gross domestic product.
B) Consumption is always a multiple of savings.
C) The money supply increases when deposits in the banking system increase.
D) The velocity of money is less than one.
48) Personal income is equal to
A) Gross domestic product minus net national product.
B) Net domestic product plus transfer payments to individuals.
C) Disposable income minus personal tax payments.
D) Disposable income plus personal tax payments.

49) A period of rising inflation

A) Increases the price level, which benefits those who are entitled to receive specific amounts of money.
B) Enhances the positive relationship between the price level and the purchasing power of money.
C) Will not be affected by contracts that include the indexing of payments.
D) Increases the price level, which is negatively related to the purchasing power of money.

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50) The trough of a business cycle is generally characterized by
A) Shortages of essential raw materials and rising costs.
B) Increasing purchasing power and increasing capital investments.
C) Rising costs and an unwillingness to risk new Investments.

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D) Unused productive capacity and an unwillingness to risk new investments.

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C
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