POLYTECHNIC UNIVERSITY OF THE PHILIPPINES FINAL EXAMINATION

Name _____________________ Year & Section _______________ Date _______________________

I.

Multiple Choice. Strictly no erasures.

1. The term working capital refers to the amount of short-term capital that is made to resolve in conducting business operations. a. True b. False

2. Working capital is the amount of current assets that is left after providing for current liabilities. a. True b. False

3. The total financing requirements of a firm may be divided in to fix assets and current assets a. True b. False

4. Under the aggressive financing strategy a firm operates with minimum working capital and depends more on short-term sources of funds for its seasonal funds requirements. a. True b. False

5. An aggressive financing strategy is risky while a conservative one involves more cost of capital ( actual interest expense and opportunity cost) so that a trade- off between the two is advisable. a. True b. False

6. An effective internal control is indispensable in managing working capital. It need not be strictly observed in the management of plant, property and equipment. a. True b. False

7. Inadequacy of a working capital can hamper operations due to in ability to procure materials, supplies and services promptly. a. True b. False

8. A firm is considered technically insolvent when it cannot pay its obligations as they mature. a. True b. False

9. A risk arising from low working capital is the hesitance of suppliers to deliver merchandise, raw materials and supplies on charge basis. a. True B. False

10. Temporarily idle working capital may be channeled to short-term investment such as shortterm time deposits, treasury bills, commercial papers and stock investments.

a. True

b. False

11. An increase in working capital implies that the business operations are profitable. a. True b. False

12. In general, a trading concern has a shorter operating cycle as compared to manufacturing firm. a. True b. False s are

13. The relevant cost in EOQ estimate inventory stockout and ordering costs. a. True b. False

14. The relevant costs in estimating optimal safety stock are inventory carrying cost and stockout cost. a. True b. False

15. The receivable turnover rate goes down from 10x to 8x. This indicates a longer collection period. a. True b. False

16. There are 10 days sales in inventory of P 30,000.00. If the number of days sales therein were increased by 50%, inventory turnover rate would go down also by 50%. ( 1 year=360 days) a. True b. False

17. The term working capital refers to the excess of current assets over current liabilities so that it must

be the amount of long-term capital that is made to resolve in conducting operations of business entity. a. True b. False

18. Although there are different inventory control systems enumerated a combination of some of tem may be adopted at the same time. a. True b. False

19. At ROP that is smaller than one estimated to result in optimal safety stocks, stockout cost is expected to exceed safety stock carrying cost. a. True b.False

20. There is no safety stock when ROP is equal to EOQ. a. True b. False

II.

Compute the following.

The income statement of VCR Corporation show the following.

Sales

P 60,000.00

Cost of Sales

P 30,000.00 25,000.00 ( 3,700.00) 8,750.00 1,500.00 7,250.00

Operating expenses Gain on Sale

Income before income taxes Income taxes Net Profit

Operating expenses include depreciation of P 7,500 and amortization of intangibles of P 2,300.00 Changes in current assets and current liabilities are as follows.

Collection on sale

P 55,000.00 P 31,500.00

Payments for purchases

Payment for expenses P 14,000.00 Payment for income taxes P 900.00

Required : Working capital and cash provided by operation.