1. Talkish is a well known political analyst. He is the darling of the press. His attitude has left many an opponent on talk shows feeling run over by a ten-wheeler truck.
Athena Publishing House is negotiating to publish Talkish's Manifesto, a new book that promises to be an instant best seller. The fixed costs of producing and marketing the book will be P500,000. The variable costs of producing and marketing will be P4.00 per copy sold. These costs are before any payment to Talkish. Talkish negotiates an up-front payment of P3 million, plus 15% royalty rate on the net sales price of each book. The net sales price is the listed book price of P30, minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply.
How many copies must Athena Publishing House sell to earn a target operating income of P2 million?
a. P397,112 c. 252,707.58
b. 240,700 d. 397,111.92
2. All of the following statements in regard to working capital are correct except:
a. Current liabilities are an important source of financing for many small firms.
b. Profitability varies inversely with liquidity.
c. The hedging approach to financing involves matching maturities of debt with specific financing needs.
d. Financing permanent inventory buildup with longterm debt is an example of an aggressive working capital policy.
ITEMS 3 AND 4 ARE BASED ON THE FOLLOWING
Karpets, Inc. is holding a two-week carpet sale at Presyongdivi, a local warehouse store. Karpets, Inc. plans to sell carpets for P500 each. The company will purchase the carpets from a local distributor for P350 each, with the privilege of returning any unsold units for a full refund. Presyongdivi has offered Karpets, Inc. two payment alternatives for the use of space.
Option 1 - A fixed payment of P5,000 for the sale period. Option 2 - 10% of total revenues earned during the sale period.
3. Assume Karpets, Inc. will incur no other costs. At what level of revenues will Karpets, Inc.
be indifferent between the two payment options?
a. P50,000 c. P10,000
b. P17,000 d. 0
4. At a sales level of 100 units, the degree of operating leverage under Option 2 is
a. 1.50 c. 1.00
b. 5.00 d. 5.50
5. The Grills Division of Steel Products Company is considering an investment in a new project. The project has an estimated cost of P1,000,000. If Steel Products Company has a target rate of return of 12%, how large does the return on investment on this project need to be to generate P150,000 of residual income?
a. 15% c. 25%
b. 12% d. 27%
6. Nice Fez is a distributor of brass picture frames. For 2020, Nice plans to purchase frames for P30 each and sell them for P45 each. Nice's fixed costs for 2020 are expected to be P240,000. Nice's only other costs will be variable costs of P60 per shipment for preparing the invoice and delivery documents, organizing the delivery, and following up for collecting accounts receivable. The P60 cost will be incurred each time Nice ships an order of picture frames, regardless of the number of frames in the order.
Suppose Nice anticipates making 500 shipments in 2020, how many picture frames must Nice sell to breakeven in 2020?
a. 20,000 c. (5,333)
b. 18,000 2. 16,000
ITEMS 7 AND 8 ARE BASED ON THE FOLLOWING
Bong Abundo is the Manila promoter for boxer Mani Pac. Bong is promoting a new world championship fight for Pac. The key area of uncertainty is the size of the cable pay-per-view TV market. Bong will pay Pac a fixed fee of P2 million and 25% of net cable pay-per-view revenues. Every cable TV home receiving the event pays P29.95, of which Bong receives P16. Bong pays Pac 25% of the P16.
Bong estimates the following probability distribution for homes purchasing the pay-per-view event:
Demand Probability 100,000 0.05 200,000 0.10 300,000 0.30 400,000 0.35 500,000 0.15 1,000,000 0.05
7. What is the expected value of the payment Bong will make to Pac?
a. P2,000,000 c. P3,520,000
b. P1,520,000 d. P8,080,000
8. Assume the only uncertainty is about cable TV demand for the fight. If, in addition to the payments to be made to Pac, Bong will incur fixed costs of P1 million and variable costs of P2 per home, what is the breakeven point?
a. 300,000 c. 166,667
b. 71,429 d. 187,500
9. Bike Co. has prepared production and raw materials budgets for next year. At the end of this year, the finished product inventory is expected to include 2,000 bicycles, and raw material inventory is expected to include 3,000 bicycle tires. Each finished bicycle requires two tires.
The marketing department provided the following data from the sales budget for the first quarter:
January
12,000
February
16,000
March
Expected bicycle sales (units)
18,000
The company inventory policy is to have finished product inventory equal to 20% of the following month's sales requirements, and raw material equal to 10% of the following month's production requirements.
In the January budget for raw materials, how many tires are expected to be purchased?
a. 24,200 c. 26,600
b. 26,120 d. 26,680
10. The optimal capitalization for an organization usually can be determined by the
a. Maximum degree of financial leverage (DFL).
b. Maximum degree of total leverage (DTL).
c. Lowest total weighted-average cost of capital (WACC).
d. Intersection of the marginal cost of capital and the marginal efficiency of investment.
11. Ning Co. projects the following monthly revenues for next year: January P100,000 July P250,000 February 500,000 August 275,000 March 425,000 September 300,000 April 450,000 October 350,000 May 575,000 November 400,000 June 300,000 December 525,000
Ning's terms are net 30 days. The company typically receives payment on 80% of sales the month following the sale and 17% is collected two months after the sale. Approximately 3% of sales are deemed bad debt.
What amount represents the expected cash collection in the second calendar quarter of next year?
a. P1,450,000 c. P1,325,000
b. P1,393,750 d. P1,234,250
12. All of the following capital budgeting analysis techniques use cash flows as the primary basis for the calculation except for the?
a. Net present value.
b. Payback period.
c. Discounted payback period.
d. Accounting rate of return.
13. Wize Co. is determining how to finance some long-term projects. Wize has decided it prefers the benefits of no fixed charges, no fixed maturity date and an increase in the credit-worthiness of the company. Which of the following would best meet Wize's financing requirements?
a. Bonds. c. Long-term debt.
b. Common stock. d. Short-term debt.
14. LED, Inc. manufactures and sells android TV sets. All sales are finalized on credit with terms of 2/10, n/30. Seventy percent of LED's customers take discounts and pay on day 10, while the remaining 30% pay on day 30. What is the average collection period in days?
a. 10 c. 24
b. 16 d. 40
15. A city ordinance that freezes rent prices may cause
a. the demand curve for rental space to fall.
b. the supply curve for rental space to rise.
c. the quantity demanded of rental space to exceed the quantity supplied.
d. the quantity supplied of rental space to exceed the quantity demanded.
10. 11. 12. 13. 14. 15. The company inventory policy is to have finished product inventory equal to 20% of the following month's sales requirements, and raw material equal to 10% of the following month's production requirements. In the January budget for raw materials, how many tires are expected to be purchased? a. 24,200 c. 26,600 b. 26,120 cl. 26,680 The optimal capitalization for an organization usually can be determined by the a. Maximum degree of financial leverage (DFL). b. Maximum degree of total leverage (DTL). c. Lowest total weig hted-average cost of capital (WACC). d. Intersection of the marginal cost of capital and the marginal efficiency of investment. Ning Co. projects the following monthly revenues for next year: January P100,000 July P250,000 February 500,000 August 275,000 March 425,000 September 300,000 April 450,000 October 350,000 May 575,000 November 400,000 June 300,000 December 525,000 Ning's terms are net 30 days. The company typically receives payment on 80% of sales the month following the sale and 17% is collected two months after the sale. Approximately 3% of sales are deemed bad debt. What amount represents the expected cash collection in the second calendar quarter of next year? a. P1,450,000 c. P1,325,000 b. P1,393,750 d. P1,234,250 All of the following capital budgeting analysis techniques use cash ows as the primary basis for the calculation except for the? a. Net present value. b. Payback period. c. Discounted payback period. d. Accounting rate of return. Wize Co. is determining how to finance some long-term projects. Wize has decided it prefers the benefits of no fixed charges, no xed maturity date and an increase in the credit-worthiness of the company. Which of the following would best meet Wize's financing requirements? a. Bonds. c. Long-term debt. b. Common stock. cl. Short-term debt. LED, Inc. manufactures and sells android TV sets. All sales are nalized on credit with terms of 2/ 10, n/30. Seventy percent of LED's customers take discounts and pay on day 10, while the remaining 30% pay on day 30. What is the average collection period in days? a. 10 c. 24 b. 16 d. 40 A city ordinance that freezes rent prices may cause the demand curve for rental space to fall. the supply curve for rental space to rise. the quantity demanded of rental space to exceed the quantity supplied. the quantity supplied of rental space to exceed the quantity demanded. 99 P'?' LivePlan Garrett's Bike Shop .. Original Forecast Account w Help PITCH PLAN FORECAST W BENCHMARKS SCHEDULE DASHBOARD AOPTIONS Financial Tables Profit & Loss Balance Sheet Cash Flow Download & Print Projected Balance Sheet Starting Projected Balance Sheet Balances Jan '20 Feb 20 Mar 20 Apr *20 May '20 Assets $91,500 $180,882 $151,048 $111,218 $99.289 $87.799 Current Assets $30,000 $120,407 591,598 $52,793 $41,889 $31,424 Cash $20,000 ($31,009) ($76,650) ($123,077) ($144,348) ($161,462) Accounts Receivable $10,000 $21,209 $32,180 $32.488 $32.618 $33,405 Inventory $0 $130,207 $136,069 $143,382 $153,620 $159.481 Long-Term Assets $61,500 $60,475 $59,450 $58,425 $57,400 $56.375 Long-Term Assets $61,500 $61,500 $61,500 $61,500 $61,500 $61,500 Accumulated Depreciation ($1,025) ($2.050) ($3,075) ($4,100) ($5,125) $87.799 Liabilities & Equity $91,500 $180,882 $151,048 $111,218 $99,289 Liabilities $10,000 $109,808 591,120 $62,151 $60,934 $62,810 Current Liabilities $10,000 $89,325 $71,023 $42,443 $41,615 $43,883 Accounts Payable $10,000 $83,485 $63.799 $33.819 $35.653 $36,424 Income Taxes Payable 50 50 SO $1,323 $2.689 $4.070 $1.389 $2.867 Sales Taxes Payable Short-Term Debt $4,517 $4,535 $4,554 $4.573 $4.592 Long-Term Liabilities $20,483 $20,097 $19.709 $19.319 $18.927 $20,483 $20,097 $19.709 $19.319 $18.927 Long-Term Debt $81,500 $71,074 $49,067 $24.988 Equity $59,928 $38, 355 Paid-In Capital $50,700 $50,700 $50,700 $50,700 $50.700 $50.700 Retained Earnings $30,800 $30,800 $30.800 $30,800 $30,800 $30.800 ($10,426) ($21.572) ($32,433) ($43,145) ($56,512) Earnings Set Starting Balances Add Asset Add Loan Add Line of Credit Add Investment Show monthly detail * Full Screen * Back: Projected Profit & Loss Next: Projected Cash Flow a5. The Grills Division of Steel Products Company is considering an investment in a new project. The project has an estimated cost of P1,000,000. If Steel Products Company has a target rate of return of 12%, how large does the return on investment on this project need to be to generate P150,000 of residual income? a. 15% c. 25% b. 12% d. 27% 5. Nice Fez is a distributor of brass picture frames. For 2020, Nice plans to purchase frames for P30 each and sell them for P45 each. Nice's xed costs for 2020 are expected to be P240,000. Nice's only other costs will be variable costs of P50 per shipment for preparing the invoice and delivery documents, organizing the delivery, and following up for collecting accounts receivable. The P50 cost will be incurred each time Nice ships an order of picture frames, regardless of the number of frames in the order. Suppose Nice anticipates making 500 shipments in 2020, how many picture frames must Nice sell to breakeven in 2020? a. 20,000 c. (5,333) b. 13,000 2. 15,000 ITEMS 7AND 8 ARE BASED ON ME FOLLOWING Bong Abundo is the Manila promoter for boxer Mani Pac. Bong is promoting a new world championship ght for Pac. The key area of uncertainty is the size of the cable pay-perview TV market. Bong will pay Pac a xed fee of P2 million and 25% of net cable pay-perview revenues. Every cable TV home receiving the event pays P2995, of which Bong receives P15. Bong pays Pac 25% of the P15. Bong estimates the following probability distribution for homes purchasing the pay-perview event: Demand Probability 100,000 0.05 200,000 0.10 300,000 0.30 400,000 0.35 500,000 0.15 1,000,000 0.05 7. What is the expected value of the payment Bong will make to Pac? a. P2,000,000 c. P3,520,000 b. P1,520,000 d. P8,080,000 8. Assume the only uncertainty is about cable TV demand for the fight. If, in addition to the payments to be made to Pac, Bong will incur xed costs of P1 million and variable costs of P2 per home, what is the breakeven point? a. 300,000 c. 155,557 b. 71,429 d. 187,500 9. Bike Co. has prepared production and raw materials budgets for next year. At the end of this year, the finished product inventory is expected to include 2,000 bicycles, and raw material inventory is expected to include 3,000 bicycle tires. Each nished bicycle requires two tires. The marketing department provided the following data from the sales budget for the rst quarter: Januanr February March Expected bicycle sales (units) 12,000 15,000 18,000 Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each item on the Special Answer Sheet provided. Strictly no era5ure allowed. Use Pencil No. 1 only. 1. Talkish is a well known political analyst. He is the darling of the press. His attitude has left many an opponent on talk shows feeling run over by a ten-wheeler truck. Athena Publishing House is negotiating to publish Talkish's Manifesto, a new book that promises to be an instant best seller. The fixed costs of producing and marketing the book will be P500,000. The variable costs of producing and marketing will be P400 per copy sold. These costs are before any payment to Talkish. Talkish negotiates an up-front payment of P3 million, plus 15% royalty rate on the net sales price of each book. The net sales price is the listed book price of P30, minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply. How many copies must Athena Publishing House sell to earn a target operating income of P2 million? a. P397,112 c. 252,707.58 b. 240,700 d. 397,111.92 2. All of the following statements in regard to working capital are correct except: a. Current liabilities are an important source of financing for many small rms. b. Profitability varies inversely with liquidity. c. The hedging approach to nancing involves matching maturities of debt with specic nancing needs. d. Financing permanent inventory buildup with longterm debt is an example of an aggressive working capital policy. ITEMS 3 AND 4 ARE BASED ON THE FOLLOWING Karpets, Inc. is holding a twoweek carpet sale at Presyongdivi, a local warehouse store. Karpets, Inc. plans to sell carpets for P500 each. The company will purchase the carpets from a local distributor for P350 each, with the privilege of returning any unsold units for a full refund. Presyongdivi has offered Karpets, Inc. two payment alternatives for the use of space. Option 1 - A xed payment of P5,000 for the sale period. Option 2 - 10% of total revenues earned during the sale period. 3. Assume Karpets, Inc. will incur no other costs. At what level of revenues will Karpets, Inc. be indifferent between the two payment options? a. P50,000 c. P10,000 b. P17,000 d. 0 4. At a sales level of 100 units, the degree of operating leverage under Option 2 is a. 1.50 c. 1.00 b. 5.00 d. 5.50
