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MANACO 2 Questions!!!

THEORIES
1.In analyzing whether to build another regional service office, the salary of the
Chief Executive Officer (CEO) at the corporate headquarters is
a. Relevant because salaries are always relevant.
b. Relevant because this will probably change if the regional service office is
build.
c. Irrelevant because it is future cost that will not differ between the alternatives
under consideration.
d. Irrelevant since another imputed costs for the same will be considered.
2. If, just prior to a period of rising prices, a company changed its inventory

measurement method from FIFO to LIFO, the effect in the next period would be to
a. Increase both the current ratio and inventory turn-over
b. Decrease both the current ratio and inventory turn-over
c. Increase the current ratio and decrease inventory turn-over
d. Decrease the current ratio and increase inventory turn-over
3. If income tax considerations are ignored, how is straight line depreciation
expense used in the following capital budgeting techniques?
Time-adjusted rate of return

Net present value

a. Excluded

Excluded

b. Excluded

Included

c. Included

Excluded

d. Included

Included

4. Various tools are employed to control large scale projects. They include all
of the following except:
A. PERT.

C. Statistical process control.

B. CPM.

D. Gantt charts.

5. All of the following statements are correct except:

a. The matching of asset and liability maturities is considered desirable because


this strategy minimizes interest rate risk.
b. Default risk refers to the inability of the firm to pay off its maturing
obligations.
c. The matching of assets and liability maturities lowers default risk.
d. An increase in the payables deferral period will lead to a reduction in the need
to non- spontaneous funding

PROBLEMS ;))
Questions 1 and 2 are based on the following data:
Allo foundation, a tax exempt organization, invested P200, 000 in a five-year
project at the beginning of 19x5. Allo estimates that the annual cash savings from
this project will amount to P65, 000. The P200, 000 of assets will be depreciated
over their five-year life on the straight line basis. On investments of this type,
Allos desired rate of return is 12%.
1. The net present value of the project is
a. P34, 325
b. P36, 400
c. P90, 000
d. P125, 000
2. Allos time-adjusted rate of return on this project is
a. Less than 12%
b. Less than 14%, but more than 12%
c. Less than 16%, but more than 14%
d. More than 16%
3. The following information regarding inventory policy was assembled by the
JRJ Corporation. The company uses a 50-week year in all calculations.
Sales
Order Quantity
Safety Stocks
Lead Time
The reorder point is
a. 3, 300 units
b. 2, 100 units
c. 100 units

10, 000 units per year


2, 000 units
1, 300 units
4 weeks

d. 1, 300 units
4. Fabella Company budgeted sales on account of P120, 000 for July, P211, 000
for August and P198, 000 for September. Collection experience indicates that 60%
of the budgeted sales will be collected the amount after the sale, 36% the second
month, and 4% will be uncollectible. The cash receipts from accounts receivable
that should be budgeted for September would be
a. P169, 800
b. P147, 960
c. P197, 880
d. P194, 760
5. Picnic Items, Inc. manufactures coolers that contain a freezable ice bag. For an
annual volume of 10, 000 units, fixed manufacturing costs of P500, 000 are
incurred. Variable costs per unit amounts are:
Direct materials

P80

Direct Labor

15

Variable Factory Overhead

20

Bags Corporation offered to supply the assembled ice bag for P40 with a
minimum order of 5, 000 units. If picnic accepts the offer it will be able to reduce
variable labor and overhead costs by 50%. The direct materials for the freezable
ice bag will cost Picnic P20 if it will produce it. Considering Bags Corporation
offer, Picnic should
a. Buy the freezable ice bag due to P150, 000 advantaged.
b. Produce the freezable ice bag due to P225, 000 advantaged.
c. Produce the freezable ice bag due to P25, 000 advantaged.
d. Buy the freezable ice bag due to P50, 000 advantaged.
6. Ken Lumber Company obtained short term bank loan for P1, 000, 000.00 at an
annual interest rate of 12%. As a condition of the loan Ken is required to maintain
a compensating balance of P200, 000.00 in its checking account. The checking
account earns interest at an annual rate of 6%. Ken would otherwise maintain
only P100, 000.00 in its checking account for transactional purposes. Kens
effective interest cost of the loan is
a. 12%

b. 14%
c. 13.50%
d. 12.67%
7. A firm maintains a debt-equity ratio of 1.0. The debt consists of bonds with a
before tax cost of 9%. The equity consists of ordinary shares with a cost of 18%.
The marginal corporate tax rate is 40%. What is the weighted average cost of
capital?
a 8.1%
.
b
.

9.9%

c.

10.8%

d
.

11.7%

Questions 8 and 9 are based on the following information.


A company has the following probabilities of profit (or loss) from an
investment opportunity:
Profit Outlook

Profit (Loss)
Amount

Probability

Optimistic

$10,000

.30

Most likely

6,000

.55

Pessimistic

(1,000)

.15

8. What is the expected profit?


A. $6,000

B. $6,150
$6,450

C.

$6,300 D.

9. How much would the company be willing to pay before investing in the
project to learn in advance which of the three scenarios (optimistic,
pessimistic, or most likely) would actually occur?
A. $0

B. $150

C.

$300

D.

$550

10. Enert, Inc.'s current capital structure is shown below. This structure is optimal, and the
company wishes to maintain it.

Debt

25%

Preferred equity

5%

Common equity

70%

Enert's management is planning to build a $75 million facility that will be


financed according to this desired capital structure. Currently, $15 million
of cash is available for capital expansion. The percentage of the $75
million that will come from a new issue of common shares is
A. 50.00%.

B. 56.25%.

C. 70.00%.

D. 56.00%.