COMPRE 3

Question 1

Kansas Office Supply had $24,000,000 in sales last year. The company’s net income was $400,000,
its total assets turnover was 5.0, and the company’s ROE was 15 percent. The company is financed
entirely with debt and common equity. What is the company’s debt ratio?

a.
0.44
b.
0.55
c.
0.20
d.
0.77
e.
0.60
f.
0.66
g.
0.30
h.
0.33

Answer 1

a.
0.44

Question 2

Brown and Company uses the internal rate of return (IRR) method to evaluate capital projects.
Brown is considering four independent projects with the following IRRs:
Project IRR
I 10%
II 12%
III 14%
IV 15%
Brown’s cost of capital is 13%. Considering these projects are risker than average, a 1.5%
adjustment is made to the cost of capital. Which one of the following project options should Brown
accept based on IRR?

a.
Project II, III and IV only.
b.
Project I, II and III only.
c.
Project IV only.
d.
Projects III and IV only.
e.
Projects I, II, III and IV.
f.
Projects I and II only.

Answer 2

c.
Project IV only.

Question 3

A law office is considering taking on a major litigation case based on commission. The attorneys
determine the probability of three possible outcome scenarios as follows:
Scenario 1: Lose the case – 25% probability
Scenario 2: Settle the case – 60% probability
Scenario 3: Win the case – 15% probability
After estimating costs to litigate the case and expected commission on each scenario, a net present
value (NPV) was computed for each scenario as follows:
Scenario 1: –$300,000 negative NPV
Scenario 2: $100,000 positive NPV
Scenario 3: $750,000 positive NPV
Using scenario analysis, what is the expected net present value for the law office of litigating the
case?

a.
$123,667
b.
$125,500
c.
$100,000
d.
$97,500
e.
$183,333
f.
Cannot be determined

Answer 3

d.
$97,500

Question 4

Consider the following financial information for the VanHorn Corporation from the prior year:
Earnings before interest and taxes $55 million
Interest expense $15 million
Preferred stock dividends $13 million
Common stock dividend-payout ratio 25%
Common shares outstanding 2,500,000
Effective corporate income tax rate 30%
Analysts estimate a $.50 EPS increase over the next 12 months. The current market price of the
stock is $25 per share. What is the trailing P/E ratio?

a.
5.68
b.
6.50
c.
4.17
d.
3.85
e.
2.60
f.
4.40
g.
6.00
h.
5.10

Answer 4

c.
4.17

Question 5

Step Company produces toys and other items for use in beach and resort areas. A small inflatable
toy has come onto the market that the company is anxious to produce and sell. Enough capacity
exists in the company’s plant to produce 16 000 toys each month. Variable costs to manufacture and
sell one toy would be P12.50, and fixed costs associated with the toy would total P218 750 per
month.
The company’s Marketing Department predicts that demand for the new toy will exceed 16 000 units
that the company is able to produce. Additional manufacturing space can be rented from another
company at a fixed cost of P10 000 per month. Variable costs in the rented facility would total P14
per toy, due to somewhat less efficient operations than in the main plant. The new toy would sell for
P30 each.
How many units should the company need to sell in order to earn a before-tax profits of P131
250?

a.
21 000
b.
20 000
c.
35 000
d.
30 375

Answer 5

a.
21 000

Question 6

A company belongs in a particular industry where the average forward P/E is 15.0x. If the
company’s earnings per share in the previous year was $20.00, and it is
expected to grow by 10.0% this year, what would be the estimated intrinsic
value for each share of the company?

a.
$18.00
b.
$270.00
c.
$2.00
d.
$330.00
e.
$300.00
f.
$22.00
g.
$360.00
h.
$240.00

Answer 6

d.
$330.00

Question 7

Ring Company makes telephones. Currently, Ring makes all components of the telephones inhouse. An outside company has offered to supply one component, part number X76, for P12 each.
Ring uses 22,000 of these components per year. Costs of X76 are as follows

Direct materials P3.00
Direct labor P1.50
Variable overhead P2.75
Fixed overhead P5.00
Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring. Should Ring
purchase the part from the outside supplier?

a.
No, income will decrease by P15,000.
b.
Yes, income will increase by P74,500.
E. No, income will decrease by P10,500.
F. Yes, income will increase by P10,500.
c.
No, income will decrease by P71,500.

Answer 7

c.
No, income will decrease by P71,500.

Question 8

Acme is considering the sale of a machine with a book value of P160,000 and 3 years remaining in
its useful life. Straight-line depreciation of P50,000 annually is available. The machine has a current
market value of P200,000. What is the cash flow from selling the machine if the tax rate
is 30%?

a.
P200,000
b.
P160,000
c.
P50,000
d.
P184,000
e.
P172,000
f.
P192,000
g.
P188,000

Answer 8

g.
P188,000

Question 9

According to COSO, the difference between inherent risk and actual residual risk results because of
management’s

a.
Inability to share the actual residual risk.
b.
Inability to alter the severity of inherent risk.
c.
Actions to alter the severity of inherent risk.
d.
Actions to alter the severity of actual residual risk.

Answer 9

c.
Actions to alter the severity of inherent risk.

Question 10

Statement 1. Elastic demand means that the percent change in price is exactly the same as the
percent change in quantity demanded.
Statement 2. Inelastic demand means that the percent change in price is larger than the percent
change in quantity demanded

a.
Both statements are true
b.
Statement 2 is true
c.
Statement 1 is true
d.
Both statements are false

Answer 10

b.
Statement 2 is true

Question 11

Statement 1. The payback method neglects project profitability
Statement 2. The payback method ignores cash flows after the payback period

a.
Statement 1 is true
b.
Statement 2 is true
c.
Both statements are false
d.
Both statements are true

Answer 11

d.
Both statements are true

Question 12

Which kind of real option will a firm most likely use if there is a chance of capturing additional future
cash flows outside the current estimates incorporated in the cash flow projections?

a.
Option to adopt
b.
Option to expand
c.
Option to abandon
d.
Option to put
e.
Option to delay

Answer 12

b.
Option to expand

Question 13

The following data pertain to three products being produced and sold by Kenan Corporation in a
typical month:
Product A Product B Product C Total
Sales P50,000 P37,500 P31,250 P118,750
Variable Costs 23,750 18,750 12,500 55,000
Contrib Margin P26,250 P18,750 P18,750 P63,750
Direct Fx Cost 15,000 8,500 10,000 33,500
Product Margin P11,250 P10,250 P 8,750 P30,250
Alloc Fx Cost 8,250 10,500 6,250 25,000
Profit (loss) P 3,000 (P250) P 2,500 P 5,250
The company’s lease contract will expire at the end of the current month, and the lessor does not
want to renew the contract. As a result Kenan Corporation must move to another facility. It has found
a new, smaller place which the company will start occupying next month. Since the new place is
smaller, one of the products has to be eliminated and the total allocated fixed cost would be reduced
by 40%.
The company should eliminate

a.
Product B
b.
Product A, B, C.
c.
Product B, C
d.
Product A, C
e.
Product C.
f.
Product A, B
g.
Product A

Answer 13

e.
Product C.

Question 14

Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be
sold at its split-off point or processed further. Additional processing costs of specific products are
entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other
relevant data are as follows:
Sales Value Additional Sales Value of
Product at Split-Off Processing Costs Final Product
W P 40,000 P 60,000 P 80,000
X P 12,000 P 4,000 P 20,000
Y P 20,000 P 32,000 P 120,000
Z P 28,000 P 20,000 P 32,000
Total P 100,000 P 116,000 P 252,000
Which products should Manning process further?

a.
All
b.
Y and X
c.
all except Z
d.
X and W
e.
Y and Z
f.
W and Z
g.
None

Answer 14

b.
Y and X

Question 15

The times interest earned ratio of McHugh Company is 4.5. The interest expense for the year was
P20,000, and the company’s tax rate is 35%. The company’s net income is:
a.
P24,500
b.
P70,000
c.
P45,500
d.
P42,000
e.
P49,000
f.
P28,000
g.
P54,000
h.
P21,000

Answer 15

c.
P45,500

Question 16

Statement 1. A private market is one like the Philippine Stock Exchange, where transactions are
handled by members of the organization, while public markets are those in the black market, where
anyone can make transactions.
Statement 2. A common stock is not a derivative, but a futures contract to buy the stock is a
derivative because the value of the futures contract is derived from the value of the stock.
a.
Statement 1 is true
b.
Both Statements are false.
c.
Statement 2 is true
d.
Both Statements are true

Answer 16

c.
Statement 2 is true

Question 17

A company determines that at a price of $14 it will sell 30,300 units and at a price of $10 it will sell
34,500 units. Using the midpoint formula, what is the price elasticity of demand?
a.
1.33
b.
0.39
c.
0.57
d.
1.75
e.
0.84
f.
1.89
g.
2.57
h.
1.33

Answer 17

b.
0.39

Question 18

If a nation’s central bank suddenly reduces the interest rates, country’s currency will most likely:
a.
decrease in relative value.
b.
increase sharply in value at first and then return to its initial value.
c.
increase in relative value slowly.
d.
Can double its existing intrinsic value.

Answer 18

a.
decrease in relative value.

Question 19

Statement 1. Pricing decisions should vary over the life of a product since competition vary over the
life of a product.
Statement 2. Pricing decisions should vary over the life of a product since sales volume vary over the
life of a product.
a.
Statement 2 is true.
b.
Both statements are true
c.
Statement 1 is true
d.
Both statements are false

Answer 19

b.
Both statements are true

Question 20

Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows.
The cost information below relates to the product:
Unit Costs
Direct materials 3.25
Direct labor 4.00
Distribution 0.75
The company will also be absorbing P120,000 of additional fixed costs associated with this new
product. A corporate fixed charge of P20,000 currently absorbed by other products will
be allocated to this new product. Bruell is subject to a tax rate of 30%.
How many surge protectors (rounded to the nearest hundred) must Bruell
Electronics sell at a selling price of P14 per unit to gain P30,000
additional income after taxes?

a.
27,100 units.
b.
20,000 units.
c.
25,000 units.
d.
12,100 units.
e.
30,400 units.
f.
28,300 units.
I. 31,700 units.
J. 31,600 units.
g.
10,700 units.
h.
30,500 units.

Answer 20

a.
27,100 units.

Question 21

Step Company produces toys and other items for use in beach and resort areas. A small inflatable
toy has come onto the market that the company is anxious to produce and sell. Enough capacity
exists in the company’s plant to produce 16 000 toys each month. Variable costs to manufacture and
sell one toy would be P12.50, and fixed costs associated with the toy would total P218 750 per
month.
The company’s Marketing Department predicts that demand for the new toy will exceed 16 000 units
that the company is able to produce. Additional manufacturing space can be rented from another
company at a fixed cost of P10 000 per month. Variable costs in the rented facility would total P14
per toy, due to somewhat less efficient operations than in the main plant. The new toy would sell for
P30 each.
The breakeven units for the new toy would be:

a.
12 500
b.
18 000
c.
21 000
d.
20 000

Answer 21

a.
12 500

Question 22

Assume that a firm has accurately calculated the net cash flows relating to an investment proposal. If
the net present value of this proposal is greater than zero and the firm is under the constraint of
capital rationing, then the firm should:

a.
calculate the bailout period to make certain that the initial cash outlay can be
recovered within an appropriate period of time.
b.
compare the profitability index of the investment to those of other possible
investments.
c.
accept the proposal, since the acceptance of value-creating investments should
increase shareholder wealth.
d.
calculate the IRR of this investment to be certain that the IRR is greater than the
cost of capital.

Answer 22

b.
compare the profitability index of the investment to those of other possible
investments.

Question 23

A company in which of the following industries is most likely to utilize a market-based as opposed to
a cost-based approach to pricing decisions?

a.
Non-competitive market, competitors’ products homogeneous.
b.
Competitive market, competitors’ products heterogeneous.
c.
Non-competitive market, competitors’ products heterogeneous.
d.
Competitive market, competitors’ products homogeneous.

Answer 23

d.
Competitive market, competitors’ products homogeneous.

Question 24

Ceteris paribus, which of the following will increase a company’s quick ratio?
a.
An increase in accounts payable.
b.
An increase in inventory and fixed assets
c.
An increase in accounts receivable and payable
d.
An increase in accounts receivable.
e.
An increase in accounts receivable and inventory
f.
An increase in net fixed assets.
g.
An increase in inventory
h.
All of the statements above are correct

Answer 24

d.
An increase in accounts receivable.

Question 25

A lot of studies of market efficiency suggest that the stock market is highly efficient in the weak
form and even reasonably efficient in the semi-strong form. On the basis of
these findings which of the following statements can be inferred?

a.
None of the statements here are correct.
b.
Information disclosed in companies’ most recent annual reports cannot be used to
consistently beat the market.
c.
Two of the statements here are correct.
d.
The stock price for a company has been increasing for the past 6 months. On the
basis of this information, it must be true that the stock price will also increase during
the current month.
e.
All of the statements here are correct.
f.
Information you read in The Wall Street Journal today cannot be used to select
stocks that will consistently beat the market.

Answer 25

c.
Two of the statements here are correct

Question 26

Miller Inc. uses straight-line depreciation for both tax and financial reporting purposes. The following
data relate to Machine No. 108, which cost $400,000 and is being written-off over a five-year life.
The Operating Income numbers below are already net of the depreciation related to Machine No.
108.
Year Operating Income
1 $150,000
2 200,000
3 225,000
4 225,000
5 175,000
The company strives for a 12% rate of return. The traditional payback period for Machine No. 108
would be:
a.
1.15 years
b.
2.14 years
c.
2.36 years
d.
2.22 years
e.
3.00 years

Answer 26

c.
2.36 years

Question 27

COSO: the benefits of enterprise risk management (ERM) include all of the following except

a.
Improved resource allocation.
b.
Decreased performance variability.
c.
Improved risk identification and management
d.
Eradication of all risks.

Answer 27

d.
Eradication of all risks.

Question 28

Statement 1. A firm short of cash might well give greater emphasis to the payback period in
evaluating a project.
Statement 2. An investment with a short payback period is almost certain to have a positive net
present value.
a.
Statement 2 is true
b.
Statement 1 is true
c.
Both statements are true
d.
Both statements are false

Answer 28

b.
Statement 1 is true

Question 29

Which of the following discounts future cash flows to their present value at the expected rate of
return, and compares that to the initial investment?

a.
bailout period
b.
traditional payback period
c.
present value method
d.
Non-discounted cash flow model
e.
internal rate of return (IRR) method
f.
Profitability index (PI) method
g.
future value method

Answer 29

f.
Profitability index (PI) method

Question 30

Bello Corporation produces and sells two products. In the most recent month, Product D99P had
sales of $33,000 and variable expenses of $15,840. Product G71P had sales of $42,000 and
variable expenses of $4,410. The fixed expenses of the entire company were $51,129.
The break-even point for the entire company is closest to:
a.
$68,205
b.
$70,040
c.
$25,210
d.
$49,790

Answer 30

b.
$70,040

Question 31

Which of the following actions is LEAST likely to increase shareholder wealth?
a.
The board of directors chose to devote funds in a project with a positive NPV
b.
The projects of the firm all have IRRs greater than the cost of capital after
adjusting for risks.
c.
The rewards and compensation of directors are linked to increasing net income
d.
The annual report truthfully stats full compliance with the corporate governance
code
e.
The cost of capital is minimized by a recent financing decision

Answer 31

c.
The rewards and compensation of directors are linked to increasing net income

Question 32

Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure
per unit.

Selling price P 150
Direct materials P 20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Fixed selling 3
Fixed administrative 10
Total costs P 90
Kator Co. has received a one-time special order for 1,000 KB-96 parts. Assuming Kator has excess
capacity and the special-order customer does not compete with Kator’s “regular” customers, the
minimum price that is acceptable for this one-time special order is in excess of:

a.
P47.
b.
P77
c.
P57
d.
P90.
e.
P50.
f.
P77.

Answer 32

a.
P47.

Question 33

Bingo.com is an online retailer that purchases novelty items directly from manufacturers and resells
to consumers at a 200% markup. Using cost-based pricing, what price would Bingo.com charge for
an item with a standard cost of $6 and a distribution cost of $2?

a.
$12
b.
$16
c.
$24
d.
$8
e.
$9
f.
$11

Answer 33

c.
$24

Question 34

Financial markets’ purpose is
a.
guaranteeing that the swings in the business cycle are less pronounced.
b.
Two of the choices are basic functions of the financial markets
c.
gathering together people with funds to lend and people who want to borrow
funds
d.
guaranteeing that governments need never resort to printing money.
e.
None of the choices are basic functions of the financial markets

Answer 34

c.
gathering together people with funds to lend and people who want to borrow
funds

Question 35

When faced with a set of independent projects, one should select (choose the best answer)

a.
all projects with a positive NPV or an IRR greater than the hurdle rate or a PI
greater than one.
b.
only the project with the highest net present value (NPV)
c.
only the project with the highest internal rate of return (IRR)
d.
all projects with a PI greater than one.
e.
all projects with an IRR greater than the hurdle rate
f.
all projects with a positive NPV

Answer 35

a.
all projects with a positive NPV or an IRR greater than the hurdle rate or a PI
greater than one.

Question 36

If sales increase from P80,000 per year to P140,000 per year, and if the operating leverage factor is
5, then net operating income should increase by:
a.
167%
b.
334%
c.
250%
d.
188%
e.
150%
f.
375%
g.
875%

Answer 36

f.
375%

Question 37

Which of the following will not be utilized in the calculation of the NPV using the certainty equivalent
approach?
a.
Certainty equivalent cash flows
b.
More than one of the items mentioned here.
c.
Expected cash flows
d.
Risk free rate
e.
Cost of capital

Answer 37

b.
More than one of the items mentioned here.

Question 38

GoldPure is considering the following independent, average-risk investment projects:
Project Size of Project Project IRR
Project V P1.0 million 12.0%
Project W 1.2 million 11.5
Project X 1.2 million 11.0
Project Y 1.2 million 10.5
Project Z 1.0 million 10.0
The company has a target capital structure that consists of 50 percent debt and 50 percent equity. Its
after-tax cost of debt is 8 percent, its cost of equity is estimated to be 16.5 percent, and its net
income is P2.5 million. If the company follows a residual dividend policy, what will be its plowback
ratio?

a.
100%
b.
54%
c.
12%
d.
32%
e.
0
f.
68%
g.
66%

Answer 38

e.
0

Question 39

Lewis Services is evaluating six investment opportunities (projects). The following table reflects each
project’s net present value NPV and the respective initial investments required. All of these projects
are independent.
Project NPV Investment
I 2,500 2,500
II 4,000 20,000
III 7,500 30,000
IV 8,000 40,000
V 2,000 10,000
VI 2,500 5,000
Lewis has an investment constraint of P50,000. Which combination of projects would represent the
optimal investment that should be recommended to Lewis Services’ management?

a.
I, III, and VI
b.
I, III and IV
c.
I, III, V, and VI
d.
I, II, III, V, and VI
e.
I, II, III, IV, V, and VI
f.
I, IV and VI
g.
II, IV and III
h.
IV only

Answer 39

c.
I, III, V, and VI

Question 40

The REAH Company produces and sells a product that uses a raw material that is subject to high
price volatility. Which of the following actions can REAH take to deal with this risk?

a.
Increase the quantity of raw material purchase regularly.
b.
Enter into futures contracts on the materials (long position).
c.
Purchase put options on the raw materials.
d.
Purchase a fire insurance on the storage facility of the material.

Answer 40

b.
Enter into futures contracts on the materials (long position).

Question 41

Which of the following would be considered a sunk cost when calculating the payback period for an
investment in a new machine?
a.
The estimated salvage value of the new machine
b.
The delivery fee of the old machine
c.
The installation cost of the new machine
d.
The delivery fee of the new machine
e.
The salvage value of the old machine

Answer 41

b.
The delivery fee of the old machine

Question 42

You own a residential apartment building in a major floodplain. You have decided to sell the building
to a group of investors. You have responded the risk with
a.
Risk exploitation.
b.
Risk reduction.
c.
Risk transfer.
d.
Risk avoidance

Answer 42

d.
Risk avoidance

Question 43

A sensitivity analysis is an evaluation of
a.
lease terms
b.
capital investment
c.
risks due to assumptions
d.
payment terms
e.
best financing source
f.
cash flows

Answer 43

c.
risks due to assumptions

Question 44

An investment opportunity costing P150,000 is expected to yield net cash flows of P36,000 annually
for six years. The NPV of the investment at a cutoff rate of 8% would be

a.
16,000
b.
P148,000.
c.
7,000
d.
P150,000.
e.
P(2,000).
f.
P(7,000)
g.
P2,000.

Answer 44

a.
16,000

Question 45

Statement 1 If a firm has unlimited funds to invest, all the mutually exclusive projects that meet its
minimum investment criteria can be implemented.
Statement 2. Mutually exclusive projects are projects whose cash flows are unrelated to one another;
the acceptance of one does not eliminate the others from further consideration.
a.
Statement 1 is true
b.
Both statements are true
c.
Both statements are false
d.
Statement 2 is true

Answer 45

c.
Both statements are false

Question 46

Jacob Corporation is growing at a constant rate of 6 percent per year. It has both common stock and
non-participating preferred stock outstanding. The cost of preferred stock (r P) is 8 percent.
The par value of the preferred stock is P100, and the stock has a stated
dividend of 10 percent of par. What is the market value of the preferred
stock?
a.
P200
b.
P125
c.
P120
d.
P175
e.
P80
f.
P150

Answer 46

b.
P125

Question 47

Cooper Industries is considering a project that would require an initial investment of P235,000. The
project would result in cost savings of P70,110 annually for the next five years. The internal rate of
return is:

a.
12%
b.
11%
c.
15%
d.
18%
e.
13%
f.
17%
g.
14%
h.
16%

Answer 47

c.
15%

Question 48

Rosner Corporation sells a product for $150 per unit. The product’s current sales are 32,500 units
and its break-even sales are 24,050 units. What is the margin of safety in units?

a.
3,607,500
b.
1,267,500
c.
8,450
d.
56,560
e.
4,875,000
f.
3,250,000
g.
21,667

Answer 48

c.
8,450

Question 49

Several surveys point out that most managers use full product costs, including unit fixed costs and
unit variable costs, in developing cost-based pricing. Which one of the following is least
associated with cost-based pricing?
a.
Fixed costs recovery pricing
b.
Target pricing.
c.
Price justification.
d.
Price stability.

Answer 49

b.
Target pricing.

Question 50

Statement 1. Sensitivity analysis is helpful when there is uncertainty with respect to one or more
variables in a CVP model.
Statement 2. Sensitivity analysis can be utilized to determine how changes in one or more inputs in a
CVP model affect the results.
a.
Statement 1 is true
b.
Both statements are true
c.
Statement 2 is true.
d.
Both statements are false

Answer 50

b.
Both statements are true

Question 51

In this phase of the product life cycle, the market is already competitive, while sales increase, the
rate of increase is slow. Prices are falling in this phase.
a.
Maturity Phase
b.
Introduction Phase
c.
Decline phase
d.
Growth Phase

Answer 51

a.
Maturity Phase

Question 52

Alpha Company produces 1 000 units of Part X per month. The total manufacturing costs of the part
are as follows:
Direct materials P 10 000
Direct labor 15 000
Variable overhead 5 000
Fixed overhead 30 000
Total manufacturing cost P 60 000
An outside supplier has offered to supply the part at P40 per unit. It is estimated that 20% of the fixed
overhead assigned to Part X will no longer be incurred if the company purchases the part from the
outside supplier.
What is the maximum price that Alpha Company should be willing to pay the outside supplier?

a.
P60
b.
P36
c.
P40
d.
P41
e.
P25
f.
P35

Answer 52

b.
P36

Question 53

Makeover Inc. believes that at its current stock price of P16.00 the firm is undervalued in the market.
Makeover plans to repurchase 3.4 million of its 20 million shares outstanding. The firm’s managers
expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after
repurchase. The firm’s current earnings are $44 million. If management’s assumptions hold, what is
the expected per-share market price after repurchase?

a.
P17.26
b.
P18.18
c.
P16.00
d.
P24.40
e.
P20.00
f.
P20.02
g.
P19.28
h.
P19.27

Answer 53

g.
P19.28

Question 54

The enterprise defines its risk appetite in which component of the ERM Framework by COSO?
a.
Strategy and Objective Setting
b.
Governance and Culture
c.
Control Environment
d.
Control Activities
e.
Performance

Answer 54

a.
Strategy and Objective Setting

Question 55

An investment opportunity costing P100,000 is expected to yield net cash flows of P21,000 annually
for eight years. The payback period of the investment is
a.
4.76 years.
b.
4.55 years.
c.
6.79 years
d.
21.00 years
e.
3.08 years.
f.
6.21 years
g.
0.22 years.
h.
5.97 years

Answer 55

a.
4.76 years.

Question 56

A company prices its main product by adding 30% to the manufacturing cost per unit. The company’s
variable manufacturing costs are $12 per unit, variable selling and administrative costs are $1 per
unit, and fixed manufacturing costs per quarter total $2,000,000. Anticipated quarterly sales were
50,000 units. The company’s market has become more competitive with similar companies offering a
selling price of $58 per unit. This has resulted in decreased demand for the company’s product,
causing actual quarterly sales to be 44,000 units. The company’s selling price per unit for the next
quarter should be:

a.
$12
b.
$60
c.
$40
d.
$72
e.
$13
f.
$58
g.
$70

Answer 56

f.
$58

Question 57

Kell Inc. is analyzing an investment for a new product expected to have annual sales of 100,000
units for the next 5 years and then be discontinued. New equipment will be purchased for
P1,200,000 an cost P300,000 to install. The equipment will be depreciated on a straight-line basis
over 5 years for financial reporting purposes and 3 years for tax purposes. At the end of the
fifth year, it will cost P100,000 to remove the equipment, which can be
sold for P300,000. Additional working capital of P300,000 will be required
immediately and needed for the life of the product. The product will sell
for P80, with direct labor and material cost of P65 per unit. Annual
indirect costs will increase by P500,000. Kell’s effective tax rate is
30%.
In ca capital budgeting analysis, what is the expected cash flow at time = 5 (fifth year of operations)
that Kell should use to compute the net present value.

a.
P740,000
b.
P800,000
c.
P1,120,000
d.
P1,240,000
e.
P900,000
f.
P1,040,000
g.
P720,000

Answer 57

f.
P1,040,000

Question 58

Which of the following statements is true?
a.
Financial risk can be caused by fluctuations in interest rates while operational risk
can be caused by using too much debt to finance operations.
b.
Operational risk can be caused by the lack of appropriate employee training while
financial risk can be caused by using too much debt to finance operations.
c.
Hazard risk can be caused by putting up a facility in an earthquake prone area while
operational risk can be caused by using too much variable costs in the cost
structure.
d.
Operational risk can be caused by fluctuations in interest rates while hazard risk can
be caused by the lack of appropriate insurance coverage.
e.
Operational risk can be caused by the lack of appropriate employee training while
hazard risk can be caused by fluctuations in interest rates.

Answer 58

b.
Operational risk can be caused by the lack of appropriate employee training while
financial risk can be caused by using too much debt to finance operations.

Question 59

Statement 1. Sensitivity analysis provides useful knowledge about the sensitivity of a project’s NPV
to a change in one (or more) input variables.
Statement 2. Sensitivity analysis indicates whether a project should be accepted or rejected.
a.
Statement 2 is true
b.
Both statements are false
c.
Statement 1 is true
d.
Both statements are true

Answer 59

c.
Statement 1 is true

Question 60

An investment opportunity costing P100,000 is expected to yield net cash flows of P21,000 annually
for eight years. If the hurdle rate is 10%, the discounted payback period of the investment is
a.
5.97 years
b.
3.08 years.
c.
21.00 years
d.
0.22 years.
e.
6.21 years
f.
4.55 years.
g.
6.79 years
h.
4.76 years.

Answer 60

g.
6.79 years

Question 61

Capital investment decisions often involve all of the following except ________.
a.
quantitative factors or considerations
b.
little amount of funds needed.
c.
Risk
d.
long periods of time
e.
qualitative factors and considerations

Answer 61

b.
little amount of funds needed.

Question 62

Isaac Corporation processes sugar beets in batches that it purchases from farmers for P47 a batch.
A batch of sugar beets costs P14 to crush in the company’s plant. Two intermediate products, beet
fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for P22 or
processed further for P13 to make the end product industrial fiber that is sold for P31. The beet juice
can be sold as is for P45 or processed further for P27 to make the end product refined sugar that is
sold for P67. Which of the intermediate products should be processed further?

a.
There are three possible answers mentioned.
b.
beet fiber should be processed into industrial fiber; beet juice
should be processed into refined sugar.
c.
beet fiber should be processed into industrial fiber; beet juice
should NOT be processed into refined sugar.
d.
beet fiber should NOT be processed into industrial fiber; beet
juice should be processed into refined sugar.
e.
beet fiber should NOT be processed into industrial fiber; beet
juice should NOT be processed into refined sugar.
f.
There are two possible answers mentioned.

Answer 62

e.
beet fiber should NOT be processed into industrial fiber; beet
juice should NOT be processed into refined sugar.

Question 63

Consider the following per unit data for Jennifer Company, a seller of both chairs and tables:
Unit Data Tables Chairs
Selling price $200 $ 50
Variable costs 120 30
Contribution margin $ 80 $ 20
Sales mix 1 4
How many tables and chairs should Jennifer Company sell to break even if fixed costs are
$210,000?

a.
1,500 tables and 6,000 chairs
b.
500 tables and 2,000 chairs
c.
1,640 tables and 6,563 chairs
d.
2,000 tables and 8,000 chairs
e.
1,313 tables and 5,250 chairs
f.
6,563 tables and 1,640 chairs
g.
1,000 tables and 4,000 chairs
h.
5,250 tables and 1,313 chairs

Answer 63

e.
1,313 tables and 5,250 chairs

Question 64

Statement 1. All three major discounted cash flow methods of evaluation will consistently give the
same desirability ranking to a series of projects.
Statement 2. If a project’s cash flows are discounted at the internal rate of return, the NPV will be
zero.
a.
Both statements are true
b.
Statement 1 is true
c.
Both statements are false
d.
Statement 2 is true

Answer 64

d.
Statement 2 is true

Question 65

This price adjustment strategy is designed to stabilize production for the selling firm?
a.
Quantity discounts.
b.
Seasonal discounts.
c.
Cash discounts.
d.
Functional discounts.
e.
Free shipping
f.
Contractual discounts.

Answer 65

b.
Seasonal discounts.

Question 66

Winneconne Company is considering replacing a machine with a book value of P400,000, a
remaining useful life of 5 years, and annual straight-line depreciation of P80,000. The existing
machine has a current market value of P400,000. The replacement machine would cost P550,000,
have a 5-year life, and save P75,000 per year in cash operating costs. If the replacement machine
would be depreciated using the straight-line method, the tax rate is 30%, inventory shall increase by
P10,000, payables by P5,000, what would be the net investment required to replace the
existing machine?
a.
P155,000
b.
P160,000
c.
P550,000
d.
P90,000
e.
P330,000
f.
P165,000
g.
P150,000
h.
P560,000

Answer 66

a.
P155,000

Question 67

The entity can increase operational risk by
a.
Increasing the variable cost in the cost structure.
b.
Increasing the fixed cost in the cost structure.
c.
Increasing the incremental cost in the cost structure.
d.
Increasing the differential cost in the cost structure.
e.
Increasing the controllable cost in the cost structure.

Answer 67

b.
Increasing the fixed cost in the cost structure.

Question 68

The following data pertain to three products being produced and sold by Kenan Corporation in a
typical month:
Product A Product B Product C Total
Sales P50,000 P37,500 P31,250 P118,750
Variable Costs 23,750 18,750 12,500 55,000
Contrib Margin P26,250 P18,750 P18,750 P63,750
Direct Fx Cost 15,000 8,500 10,000 33,500
Product Margin P11,250 P10,250 P 8,750 P30,250
Alloc Fx Cost 8,250 10,500 6,250 25,000
Profit (loss) P 3,000 (P250) P 2,500 P 5,250
The company’s lease contract will expire at the end of the current month, and the lessor does not
want to renew the contract. As a result Kenan Corporation must move to another facility. It has found
a new, smaller place which the company will start occupying next month. Since the new place is
smaller, one of the products has to be eliminated and the total allocated fixed cost would be reduced
by 40%.
After eliminating the appropriate product, Kenan Corporation’s total income before tax would be?

a.
6,250
b.
3,750
c.
2,750
d.
6,500
e.
2,500
f.
5,500
g.
4,000
h.
5,750

Answer 68

d.
6,500

Question 69

Vhallena Maritime Exploration Inc. regularly takes real options into account when evaluating its
proposed ventures. Specifically, Vhallena considers the option to abandon a project whenever it
turns out to be unsuccessful (the abandon option). Assume the proposed projects can be abandoned
at any time without penalty. Which of the following statements is most correct?

a.
If there are important first-mover advantages, this tends to increase the value of
waiting a year to collect more information before proceeding with a proposed
project.
b.
The abandon option tends to reduce both the project’s NPV and its risk
c.
The abandon option tends to reduce a project’s NPV.
d.
All of the statements above are correct.
e.
The abandon option tends to reduce a project’s risk.

Answer 69

e.
The abandon option tends to reduce a project’s risk.

Question 70

According to COSO, ERM is best defined as
a.
A process, effected by an entity’s board of directors, management, and other
personnel, designed to provide reasonable assurance regarding the achievement of
objectives relating to operations, reporting, and compliance.
b.
A process that takes a control-based approach to an organization.
c.
The culture, capabilities, and practices that organizations rely on to manage risk in
creating, preserving, and realizing value.
d.
A serial process in which one component affects only the next component

Answer 70

c.
The culture, capabilities, and practices that organizations rely on to manage risk in
creating, preserving, and realizing value.

Question 71

Siberian Ski Company recently expanded its manufacturing capacity to allow it to produce up to
15,000 pairs of cross-country skis of the mountaineering model or the touring model. The sales
department assures management that it can sell between 9,000 pairs and 13,000 pairs (units) of
either product this year. Because the models are very similar, Siberian Ski will produce only one of
the two models. The information below was compiled by the accounting
department.
Model Mountaineering Touring
Selling Price per unit P88 P80
Variable Cost per unit P52.80 P52.80
Fixed costs will total P369,600 if the mountaineering model is produced but will be only P316,800 if
the touring model is produced. Siberian Ski is subject to a 40% income tax rate.
If the Siberian Ski Company Sales Department could guarantee the annual sale of 15,000 pairs of
either model, Siberian Ski would:

a.
Be indifferent as to which model is sold because each model has the same
variable cost per unit.
b.
Produce 15,000 pairs of mountaineering skis because they are
more profitable.
c.
Produce 15,000 pairs of touring skis because they have a higher
breakeven point.
d.
Produce 15,000 pairs of touring skis because they have a lower
fixed cost.
e.
Produce 15,000 pairs of mountaineering skis because they have a
lower breakeven point.

Answer 71

b.
Produce 15,000 pairs of mountaineering skis because they are
more profitable.

Question 72

The securities that are sold to savers or investors without transacting through financial institutions
are said to be a(n):
a.
Indirect transfer through a financial institution
b.
Indirect transfer through an investment bank
c.
Pension transfer
d.
None of the items given is correct
e.
Direct transfer
f.
Global transfer

Answer 72

e.
Direct transfer

Question 73

Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently
experienced a market reevaluation. The firm has a P1,000 bond issue outstanding with 15 years to
maturity and a coupon rate of 8 percent, with interest paid semiannually. The required nominal rate
on this debt has now risen to 15 percent. What is the current value of this bond?

a.
P 587
b.
P1,000
c.
P 603
d.
P 550
e.
P 450
f.
P1,273
g.
P1,605

Answer 73

a.
P 587

Question 74

Finn Products, a start-up company, wants to use cost-based pricing for its only product, a unique
new video game. Finn expects to sell 10,000 units in the upcoming year. Variable costs will be $65
per unit and annual fixed operating costs (including depreciation) amount to $80,000. Finn’s balance
sheet is shown here.
Assets Liabilities and Equity
Current Assets $100,000 Accounts payable $ 25,000
Plant and Equip 425,000 Debt 200,000
$525,000 Equity 300,000
$525,000
What price on the new product is needed if Finn wants to earn a 20% return on equity (ROE) and the
tax rate is 50%?

a.
$85
b.
$87
c.
$69
d.
$73
e.
$77
f.
$65
g.
$81

Answer 74

a.
$85

Question 75

A company has common stock with a market price of P54.50 per share and an expected dividend of
P2.81 per share at the end of the coming year. The dividends paid on the outstanding stock over the
past five years are as follows:
Year Dividend
1 P2.20
2 P2.31
3 P2.43
4 P2.55
5 P2.68
The cost of the company’s common stock equity is

a.
Between 12% and 13%
b.
Between 11% and 12%
c.
Between 14% and 15%
d.
Between 10% and 11%
e.
Between 13% and 14%
f.
Between 8% and 9%
g.
Between 9% and 10%

Answer 75

d.
Between 10% and 11%

Question 76

Statement 1. The Primary markets are huge and relevant, while secondary markets are smaller and
less significant.
Statement 2. The Philippine Stock Exchange is defined as a “primary” market because it is one of
the largest and most important stock markets in the world.
a.
Statement 2 is true
b.
Both Statements are false.
c.
Both Statements are true.
d.
Statement 1 is true

Answer 76

b.
Both Statements are false.

Question 77

Which risk response reflects a change from acceptance to sharing?

a.
The executives decided to sell a manufacturing plant in a flood prone area.
b.
The insurance policy on a production plant was not renewed.
c.
The executives decided to buy insurance on previously uninsured property.
d.
After workers stole numerous inventory items, management implemented
mandatory background checks on all employees.

Answer 77

c.
The executives decided to buy insurance on previously uninsured property.

Question 78

A company produces and sells roof shingles. The corporation has six retail stores, each located in a
different city. Each branch has a different pricing schedule to maintain the best prices in its
respective city. This is an example of
a.
Discounting
b.
Price gouging
c.
Cost-plus pricing.
d.
Market comparable pricing.
e.
Price skimming
f.
Break-even pricing.

Answer 78

d.
Market comparable pricing.

Question 79

An organization has two options for dealing with a possible loss. Option A reduces the expected
value of the loss from $250,000 to $80,000 at a cost of $60,000 and Option B reduces the expected
value of the loss from $250,000 to $40,000 at a cost of $100,000. Which option is preferable?

a.
The options are equally preferable since they both have the same “net benefit.”
b.
Option B is preferable since it results in a lower expected value of the loss.
c.
Option B is preferable because it has a higher “net benefit” than Option A has.
d.
The options are equally preferable since they both reduce the expected value of
the loss by the same amount.
e.
Option A is preferable since it costs less than Option B.

Answer 79

a.
The options are equally preferable since they both have the same “net benefit.”

Question 80

Calvin Inc. is considering the purchase of a new state-of-the-art machine to replace its handoperated machine. Calvin’s effective tax rate is 30%, and its cost of capital is 12%. Data regarding
the existing and new machines are presented below.
Existing machine New machine
Original cost P50,000 P90,000
Installation cost 0 4,000
Freight and insurance 0 6,000
Expected salvage value 0 0
Depreciation method Straight line Straight line
Expected useful life 10 years 5 years
The existing machine has been in service for seven years and could be sold currently for P25,000. If
the new machine is purchased, Calvin expects to realize a P30,000 before-tax annual reduction in
labor costs.
If the new machine is purchased, what is the net amount of the initial cash outflow at Time 0 for net
present value calculation purposes?

a.
P22,000
b.
P69,000
c.
P75,000
d.
P78,000
e.
P79,000
f.
P68,000

Answer 80

d.
P78,000

Question 81

An entity is planning to introduce a new product, DMA. It is expected that 10,000 units of DMA will be
sold. The full product cost per unit is $150. Invested capital for this product amounts to $20 million.
The entity’s target rate of return on investment is 20%. The markup percentage for this product,
based on operating income as a percentage of full product cost, will be

a.
266.7%
b.
366.7%
c.
400.0%
d.
233.3%
e.
133.3%
f.
42.9%
g.
57.1%

Answer 81

a.
266.7%

Question 82

Which one of the following situations best lends itself to a cost-based pricing approach?
a.
A paper manufacturer negotiating the price for supplying bond paper to a new
chain of office products depots.
b.
A CPU component manufacturer debating pricing with a new customer for a tailormade, advanced application.
c.
A CPU component manufacturer debating pricing terms with a customer in a new
channel of distribution.
d.
An engineering equipment manufacturer negotiating pricing for one of its standard
models with a major steel processor.

Answer 82

b.
A CPU component manufacturer debating pricing with a new customer for a tailormade, advanced application.

Question 83

Which of the following is not an example of risk avoidance?
a.
Stopping the granting of credit to customers and only making cash sales
b.
Opening up a second service facility geographically distant from the first one.
c.
Discontinuing the product line which is believed to have long-term adverse health
effects.
d.
Withdrawing all operations from a country with a likelihood of asset sequesters by
government.
e.
None as all of them are example of risk avoidance.

Answer 83

b.
Opening up a second service facility geographically distant from the first one.

Question 84

Alpha Company produces 1 000 units of Part X per month. The total manufacturing costs of the part
are as follows:
Direct materials P 10 000
Direct labor 15 000
Variable overhead 5 000
Fixed overhead 30 000
Total manufacturing cost P 60 000
An outside supplier has offered to supply the part at P40 per unit. It is estimated that 20% of the fixed
overhead assigned to Part X will no longer be incurred if the company purchases the part from the
outside supplier.
If Alpha Company purchases 1 000 units of Part X form the outside supplier per month, then its
monthly operating income will
a.
Decrease by P5,000
b.
Not change.
c.
Increase by P20,000
d.
Decrease by P20,000
e.
Decrease by P4,000

Answer 84

e.
Decrease by P4,000

Question 85

Select the correct statement(s)

a.
Two of the statements here are correct.
b.
All of the statements here are correct.
c.
The existence of an option to abandon a project later without penalty, increases the
likelihood that the company will invest in the project today.
d.
Opportunity costs are relevant in evaluating potential projects
e.
Sunk costs are relevant in evaluating potential projects

Answer 85

a.
Two of the statements here are correct.

Question 86

The Taller Company has 400 obsolete desk calculators that are carried in inventory at a total cost of
P16,800. If these calculators are upgraded at a total cost of P10,000, they can be sold for a total of
P30,000. As an alternative, the calculators can be sold in their present condition for P10,200.
What is the net advantage or disadvantage to the company from upgrading the calculators?
a.
P8,800 advantage
b.
P8,000 disadvantage
c.
P20,000 advantage
d.
P18,800 disadvantage
e.
P19,800 advantage
f.
P9,800 advantage

Answer 86

f.
P9,800 advantage

Question 87

Which one of the following statements is the best definition of elastic demand?
Selected
a.
Goods where a consumer is more likely to continue to purchase, but demand is
impacted by a limited product variety.
b.
Demand for the good in which its percentage change in quantity demanded is less
than the percentage change in price.
c.
Demand for the good in which its percentage change in quantity demanded is
greater than the percentage change in price.
d.
Goods where a consumer needs or wants only a limited amount, and demand
decreases when the minimum is obtained.

Answer 87

c.
Demand for the good in which its percentage change in quantity demanded is
greater than the percentage change in price.

Question 88

Bachelor’s Bus Co. uses the residual dividend model to determine its common dividend payout. This
year the company expects its net profit to be P2 million, and it expects to have a 25 percent common
dividend payout ratio. The company’s target debt ratio is 40 percent, and the firm is financed with
only common equity and debt. What is the company’s forecasted total capital budget for the year?
a.
P2.50 million
b.
P1.25 million
c.
P3.25 million
d.
P2.25 million
e.
P3.75 million
f.
P3.33 million
g.
P5.00 million

Answer 88

a.
P2.50 million

Question 89

Gurdip plots the historic movements of share prices and uses this analysis to make her investment
decisions.
Oliver believes that share prices reflect all relevant information found at the news and financial
reports, yet is concerned that inside information may render this analysis wrong.
To what extent do Gurdip and Oliver believe capital markets to be efficient?
a.
Gurdip: Semi-strong form efficient; Oliver: Not efficient at all
b.
Gurdip: Not efficient at all; Oliver: Strong form efficient
c.
Gurdip: Not efficient at all; Oliver: Semi-strong form efficient
d.
Gurdip: Weak form efficient; Oliver: Strong form efficient
e.
Gurdip: Strong form efficient; Oliver: Not efficient at all

Answer 89

c.
Gurdip: Not efficient at all; Oliver: Semi-strong form efficient

Question 90

The Thomas Company is assessing the potential loss from a strike. The following table lists three
possible scenarios, the expected loss under each scenario, and the likelihood of each scenario.
Scenario Expected Loss Likelihood
Short Strike $120,000 20%
Medium Strike $480,000 30%
Lengthy Strike $2,400,000 50%
Based on this information, what is the expected loss from this strike?

a.
$1,276,667
b.
$1,596,000
c.
$1,368,000
d.
$1,000,000
e.
$2,400,000
f.
$120,000
g.
$1,422,222

Answer 90

c.
$1,368,000

Question 91

Statement 1. A firm with limited funds must ration its funds by allocating them to projects that will
maximize share value.
Statement 2. Independent projects are projects that compete with one another, so that the
acceptance of one eliminates the others from further consideration.
a.
Statement 2 is true
b.
Statement 1 is true
c.
Both statements are false
d.
Both statements are true

Answer 91

b.
Statement 1 is true

Question 92

DLS Technologies has the following relationships:
Annual sales $1,200,000.00
Current liabilities $ 375,000.00
Days sales outstanding (DSO) (365-day year) 40.00
Quick ratio 1.20
Inventory $ 250,000.00
The company’s current assets consist of cash, inventories, and accounts receivable. How much cash
does DLS have on its balance sheet?

a.
$266,667
b.
$318,493
c.
$316,667
d.
$568,493
e.
-$ 8,333
f.
$125,000
g.
$200,000
h.
$ 68,493

Answer 92

b.
$318,493

Question 93

Select the correct statement

a.
Decreasing the price of a product with an inelastic demand will decrease total
revenue.
b.
It is not possible to know the impact on total revenue of a change in the price of a
product based on elasticity.
c.
Decreasing the price of a product with an elastic demand will decrease total
revenue.
d.
Decreasing the price of a product with unit demand elasticity will decrease total
revenue.

Answer 93

a.
Decreasing the price of a product with an inelastic demand will decrease total
revenue.

Question 94

Which of the following are not real options?

a.
The ability to buy additional shares of stock if the stock price goes up.
b.
The ability to explore further into a new geographic region.
c.
The ability to change sources of fuel used in an industrial furnace.
d.
The ability to increase production if the product is successful.
e.
The ability to leave a project.

Answer 94

a.
The ability to buy additional shares of stock if the stock price goes up.

Question 95

Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the
following operating results next year for each type of customer:
Residential Commercial
Sales P60,000 P140,000
Contribution margin ratio 50% 30%
Slosh expects to have P50,000 in fixed expenses next year. What would Slosh’s peso sales
revenues from Commercial customers have to be next year in order to generate a profit of
P166,000?

a.
P300,000
b.
P432,000
c.
P420,000
d.
P216,000
e.
P540,000
f.
P500,000
g.
P210,000
h.
P600,000

Answer 95

c.
P420,000

Question 96

Statement 1. For conventional projects, both NPV and IRR techniques will always generate the same
accept/reject decision, but differences in their underlying assumptions can cause them to rank
projects differently.
Statement 2. Conflicting rankings using NPV and IRR result from differences in the magnitude and
timing of

a.
Both statements are false
b.
Statement 1 is true
c.
Statement 2 is true
d.
Both statements are true

Answer 96

d.
Both statements are true

Question 97

Charles Company owns a building that originally cost P400,000 and has a current book value of
P250,000. Charles Company would like to purchase a new building for P600,000. If the new building
is purchased, the existing building would be sold for P380,000. Charles Company’s income tax rate
is 40%. If the new building is purchased, the relevant initial cash flows would total:

a.
P372,000
b.
P600,000
c.
P272,000
d.
P220,000
e.
P292,000
f.
P328,000
g.
P200,000
h.
P168,000

Answer 97

c.
P272,000

Question 98

Step Company produces toys and other items for use in beach and resort areas. A small inflatable
toy has come onto the market that the company is anxious to produce and sell. Enough capacity
exists in the company’s plant to produce 16 000 toys each month. Variable costs to manufacture and
sell one toy would be P12.50, and fixed costs associated with the toy would total P218 750 per
month.
The company’s Marketing Department predicts that demand for the new toy will exceed 16 000 units
that the company is able to produce. Additional manufacturing space can be rented from another
company at a fixed cost of P10 000 per month. Variable costs in the rented facility would total P14
per toy, due to somewhat less efficient operations than in the main plant. The new toy would sell for
P30 each.
Assuming that Step Company will just rent a manufacturing space for a month in order to
produce a special order for 8 000 toys. What is the acceptable minimum selling price to Step
Company for the special sale?

a.
22.00
b.
P14.00
c.
P15.25
d.
24.00

Answer 98

c.
P15.25

Question 99

You own 3,000 shares of Split-Holdings Co. The shares are currently selling for $48. The company
has just announced a 3-for-1 stock split. How many shares will you own after the split, and
approximately what will your holdings in Split-Holdings Co. be worth?
a.
12,000 shares worth about $576,000
b.
1,000 shares worth about $48,000
c.
9,000 shares worth about $48,000
d.
15,000 shares worth about $720,000
e.
12,000 shares worth about $144,000
f.
9,000 shares worth about $144,000
g.
9,000 shares worth about $432,000
h.
1,000 shares worth about $432,000

Answer 99

f.
9,000 shares worth about $144,000

Question 100

Which one of these entities cannot invest in a hedge fund?

a.
Financial Institutions since they are subject to more regulations
b.
Wealthy investing individuals since they are subject to regulations
c.
Pension funds
d.
Small retail investing individuals
e.
Insurance Companies

Answer 100

d.
Small retail investing individuals