Вы находитесь на странице: 1из 12



1. Controllership has attained special recognition in corporate management as business expand in complexity
and reach and as the controller exerts influence for to take organization’s goals. Controllership and
treasurership constitute corporate finance. These are among corporate finance’s traditional functions.

1. Tax management
2. Finance reporting and interpretation
3. Credit management
4. Sourcing and investing funds
5. Reporting to government regulatory agencies
6. Risk management
7. Economic appraisal
8. Planning for control

Which of the following are the functions of the controller?

a. All eight items
b. Items 1, 2, 5, 7 and 8 only
c. Items 1, 2, 3, 4, 5, 7 and 8 only
d. Items 2, 3, 5, 7 and 8 only

2. What kind of costs can be conveniently and economically traced to a cost object or pool?
a. Indirect Costs.
b. Relevant Costs.
c. Direct Costs.
d. Overhead Costs.

3. Wesleyan University Hospital plans to use activity-based costing to assign hospital indirect costs to the
care of patients. The hospital has identified the following activities and activity rates for the hospital’s
indirect costs:
Activity Activity Rate
Room and meals P150 per day
Radiology P 95 per image
Pharmacy P 20 per physician order
Chemistry lab P 85 per test
Operating room P550 per operating room
The records of two representative patients were analyzed, using the activity rates. The activity
information associated with the two patients is as follows:
Patient Flor Patient Laura
Number of days 7.0 3
Number of images 4.0 2
Number of physician orders 5.0 1
Number of tests 6.0 2
Number operating room 4.5 1
Determine the activity cost associated with Patient Flor:
a. P4,500
b. P4,550
c. P4,495
d. P4,515

Question Nos. 4 and 5 are based on the following:

Hughes Company produces three products with the following production and cost information:
Model A Model B Model C
Units produced 2,000 6,000 12,000
Direct labor hours (total) 4,000 2,000 4,000
Number of setups 100 150 250
Number of shipments 200 225 275
Engineering change orders 15 10 5
Overhead costs include setups P90,000; shipping costs P140,000; and engineering costs P180,000.

4. What would be the per unit overhead cost for Model A if direct labor hours were the allocation base?
a. P20.50
b. P41.00
c. P82.00
d. P76.00

5. What would be the per unit overhead cost for Model A if activity-based costing were used?
a. P20.50
b. P74.00

Page 1 of 12
c. P82.00
d. P76.00

6. If both the fixed and variable expenses associated with a product decrease, what will be the effect on the
contribution margin ratio and the break-even point, respectively?

Contribution margin ratio Break-even point

a. Decrease Increase
b. Increase Decrease
c. Decrease Decrease
d. Increase Increase

7. Hopi Corporation expects the following operating results for next year:

Sales...................................................... P400,000
Margin of safety....................................... P100,000
Contribution margin ratio........................... 75%
Degree of operating leverage..................... 4

What is Hopi expecting total fixed expenses to be next year?

a. P75,000
b. P100,000
c. P200,000
d. P225,000

8. Escareno Corporation has provided its contribution format income statement for June. The company
produces and sells a single product.

Sales (8,400 units)........................ P764,400

Variable expenses.......................... 445,200
Contribution margin....................... 319,200
Fixed expenses.............................. 250,900
Net operating income..................... P 68,300

If the company sells 8,200 units, its total contribution margin should be closest to:
a. P301,000
b. P311,600
c. P319,200
d. P66,674

9. Holt Company's variable expenses are 70% of sales. At a P300,000 sales level, the degree of operating
leverage is 10. If sales increase by P60,000, the degree of operating leverage will be:
a. 12
b. 10
c. 6
d. 4

10. Tonswift Company produces a single product. Last year, the company had net operating income of
P40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units,
respectively. If the fixed manufacturing overhead cost was P3.00 per unit, what was the income using
absorption costing?
a. P15,000 c. P40,000
b. P25,000 d. P55,000

11. Gent Corporation manufactures and sells a spice rack. Shown below are the actual operating results for
the first two years of operations:

Year 1 Year 2
Units (spice racks) produced................................. 40,000 40,000
Units (spice racks) sold........................................ 37,000 41,000
Absorption costing net operating income................. P44,000 P52,000
Variable costing net operating income.................... P38,000 ???

Gent's cost structure and selling price were the same for both years. What is Gent's variable costing net
operating income for Year 2?

Page 2 of 12
a. P48,000
b. P50,000
c. P54,000
d. P56,000

12. The local video store’s business increased by 12% after the movie theater raised in prices from
P6.50 to P7.00. This is an example of
a. Substitute goods
b. Superior goods
c. Complementary goods
d. Public goods

13. Which of the following would be not included in the calculation of the gross domestic product
a. Purchase of new home
b. An automative worker’s wages
c. A doctor’s fee
d. Purchase of common stock

14. The Fletcher Company uses standard costing. The following data are available for October:

Actual quantity of direct materials used 23,500 lbs

Standard price of direct materials P2 per pound
Material quantity variance P1,000 favorable

The standard quantity of material allowed for October production is:

a. 23,000 lbs
b. 24,000 lbs
c. 24,500 lbs
d. 25,000 lbs

15. The auto repair shop of Empire Motor Sales uses standards to control labor time and labor cost in
the shop. The standard time for a motor tune-up is 2.5 hours. The record showing time spent in
the shop last week on tune-ups has been misplaced; however, the shop supervisor recalls that 50
tune-ups were completed during the week and the controller recalls that the labor rate variance on
tune-ups was P87, favorable. The shop has a set standard labor rate of P9 per hour for tune-up
work. The total labor variance for the week on tune-up work was P93, unfavorable.

The actual hourly rate of pay for tune-up work last week was:
a. P8.40 per hour
b. P9.00 per hour
c. P9.60 per hour
d. Cannot be computed without further information

The next two questions are based on the following information:

Beebo Company uses a standard cost system as a means of control for their manufacturing
business. The firm has done an analysis of its overhead cost behavior patterns relative to its
activity base of direct labor hours (DLH), and reports the following findings:

Variable overhead
Indirect material P1.20 per DLH
Indirect labor 2.15 per DLH
Other indirect costs 3.45 per DLH
Annual Fixed Costs
Salaries P100,000
Depreciation 14,000
Rent 30,000

Beebo’s annual budget is based on total production of 240,000 units, for which 2.5 DLH per unit is
required. It may be assumed that Beebo’s fixed costs and production activity occur evenly
throughout the year. During its first month of operations in the current year Beebo produced
22,000 units, logged 57,200 direct labor hours, and reported the following cost figures.

Actual variable overhead costs, P360,000

Total fixed costs, P14,000

16. Beebo’s overhead spending variance for the month is

a. P10,000 unfavorable
b. P22,000 unfavorable
c. P28,688 favorable
d. P26,960 favorable

17. Beebo’s overhead efficiency variance for the month is

a. P14,960 unfavorable
b. P15,488 unfavorable
c. P48,960 favorable
d. P50,688 favorable

18. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month following
sale, and 6% in the second month following sale. The remainder is uncollectible. Budgeted sales
for the next four months are:

January February March April

Budgeted sales........ $200,000 $300,000 $350,000 $250,000

Cash collections in April are budgeted to be:

a. $321,000
b. $313,000
c. $320,000
d. $292,000

19. Traverse Company manufactures and sells women's skirts. Each skirt (unit) requires 2.5 yards of
cloth. Selected data from Traverse's master budget for next quarter are shown below:

July August September

Budgeted sales (in units)................ 6,000 8,000 9,000
Budgeted production (in units)........ 8,000 10,500 12,000

Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's direct labor
is $10. What is the cost of Traverse Company's direct labor in September?
a. $135,000
b. $180,000
c. $157,500
d. $120,000

20. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct
labor budget indicates that 5,600 direct labor-hours will be required in August. The variable
overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing
overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed
manufacturing overhead costs represent current cash flows. The August cash disbursements for
manufacturing overhead on the manufacturing overhead budget should be:
a. $99,680
b. $84,000
c. $53,760
d. $30,240

The next three questions are based on the following data:

The management of Arleen Corporation is considering the purchase of a new machine costing
P400,000. The company’s desired rate of return is 10%. The present value of P1 at compound
interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively,
and the present value of annuity of 1 for 5 periods at 10 percent is 3.79. In addition to the
foregoing information, use the following data in determining the acceptability in this situation:

Year Income from Operations Net Cash Flow

1 P100,000 P180,000
2 40,000 120,000
3 20,000 100,000
4 10,000 90,000
5 10,000 90,000

21. The average rate of return for this investment is:

a. 18 percent
b. 6 percent
c. 58 percent
d. 10 percent

22. The net present value for this investment is:

a. Positive P 36,400
b. Positive P 55,200
c. Negative P 99,600
d. Negative P126,800

23. The present value index for this investment is:

a. 0.88
b. 1.45
c. 1.14
d. 0.70

24. The relationship between payback period and IRR is that

a. a payback period of less than one-half the life of a project will yield an IRR lower than the
target rate.
b. the payback period is the present value factor for the IRR.
c. a project whose payback period does not meet the company’s cutoff rate for payback will not
meet the company’s criterion for IRR.
d. none of the above.

25. When comparing NPV and IRR, which is not true?

a. With NPV, the discount rate can be adjusted to take into account increased risk and the
uncertainty of cash flows
b. With IRR, cash flows can be adjusted to account for risk
c. NPV can be used to compare investments of various size or magnitude
d. Both NPV and IRR can be used for screening decisions

26. Ratzlaff Company has a current production level of 20,000 units per month. Unit costs at this
level are:

Direct materials P0.25

Direct labor 0.40
Variable overhead 0.15
Fixed overhead 0.20
Marketing - fixed 0.20
Marketing/distribution - variable 0.40

Current monthly sales are 18,000 units. Jim Company has contacted Ratzlaff Company about
purchasing 1,500 units at P2.00 each. Current sales would not be affected by the one-time-only
special order, and variable marketing/distribution costs would not be incurred on the special order.
What is Ratzlaff Company’s change in operating profits if the special order is accepted?
a. P400 increase in operating profits
b. P400 decrease in operating profits
c. P1,800 increase in operating profits
d. P1,800 decrease in operating profits

27. Relevant costs of a make-or-buy decision include all EXCEPT

a. fixed salaries that will not be incurred if the part is outsourced.
b. current direct material costs of the part.
c. special machinery for the part that has no resale value.
d. material-handling costs that can be eliminated.

28. Camera Corner is considering eliminating Model AE2 from its camera line because of losses over
the past quarter. The past three months of information for Model AE2 are summarized below.

Sales (1,000 units) P300,000

Manufacturing costs:
Direct materials 150,000
Direct labor (P15 per hour) 60,000
Overhead 100,000
Operating loss (P10,000)

Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for
model AE2 that has no resale value.

If Model AE2 is dropped from the product line, operating income will
a. increase by P10,000.
b. decrease by P20,000.
c. increase by P30,000.
d. decrease by P10,000.

29. India Corporation has P200,000 of joint processing costs and is studying whether to process J and
K beyond the split-off point. Information about J and K follows.

Product J Product K
Tons produced 25,000 15,000
Separable variable processing costs beyond split-off P64,000 P100,000
Selling price per ton at split-off 15 52
Selling price per ton after additional processing 21 58

If India desires to maximize total company income, what should the firm do with regard to
Products J and K?
Product J Product K
a. Sell at split-off Sell at split-off
b. Sell at split-off Process beyond split-off
c. Process beyond split-off Sell at split-off
d. Process beyond split-off Process beyond split-off

30. In the decision on whether or not to drop an unprofitable product line, the product line will most
likely be dropped if:
a. all of the product line's fixed costs are unavoidable.
b. the product line's total fixed costs are less than the contribution margin lost from dropping the
product line.
c. the contribution margin lost from dropping the product line is less than the fixed costs avoided
from dropping the product line.
d. the contribution margin lost from dropping the product line is more than the fixed costs
avoided from dropping the product line.

31. Laurel Inc. has three product lines: A, B, and C.

A B C Total
Sales P20,000 P35,000 P22,000 P77,000
Variable costs 8,000 10,000 14,000 32,000
Contribution margin 12,000 25,000 8,000 45,000
Fixed costs 4,000 11,000 9,000 24,000
Net income P 8,000 P14,000 P (1,000) P21,000

Management is considering dropping product line C. If it is discontinued, one-half of its fixed costs
can be avoided. The discontinuation of product line C would:
a. decrease net income by P3,500.
b. increase net income by P1,000.
c. decrease net income by P12,500.
d. increase net income by P4,500.

32. You are evaluating the performance of Department X of B Corp. for the year 2015. You are given
the following facts:

Sales during the year amounted to P880,000 at 12% margin

Return on investment was 20%
Minimum required rate of return was 15%

Based on the above information, the department’s residual income for the year 2015 was
a. P26,400
b. P105,600
c. P79,200
d. P42,240

33. JW is the general manager of the Industrial Product Division, and his performance is measured
using the residual income method. Webb is reviewing the following forecasted information for his
division for next year:

Category Amount
Working capital P1,800
Revenue 30,000
Plant and equipment 17,200

If the imputed charge is 15% and Webb wants to achieve a residual income target of P2,000,000,
what will costs have to be in order to achieve the target?
a. P9,000,000
b. P10,800,000
c. P25,150,000
d. P25,690,000

34. The following selected information is from the financial statements of Bishop Corporation for the
last fiscal year.

Current Assets P 500,000

Fixed Assets 250,000
Current Liabilities 100,000
Long-Term Debt 300,000
Shareholder’s Equity 350,000
Operating Profit 1,000,000
Income Taxes 400,000
Net Income 600,000

Bishop has a cost of capital of 10%. The company’s economic value added (EVA) for last year was
a. P535,000
b. P570,000
c. P935,000
d. P970,000

35. Which of the following types of responsibility centers has accountability for revenues?
a. Cost center and investment centers
b. Profit centers and investment centers
c. Cost centers and profit centers
d. Expense and investment centers
36. Ferndale Distributors is reviewing its inventory policy with respect to safety stocks of its most
popular product. Four safety stock levels were analyzed and annual stockout costs estimated for
each level.

Safety Stock Stockout Costs

1,000 units P3,000
1,250 units 2,000
1,500 units 1,000
2,000 units 0

The cost of this product is P20 per unit, holding costs are 4% per year, and the cost of short-term
funds is 10% per year. What is the optimal safety stock level?
a. 1,000 units.
b. 1,250 units.
c. 1,500 units.
d. 2,000 units.

37. In monitoring collection policy, the firm should look at all of the following, except
a. Average collection period
b. Agin of accounts receivable
c. Ratio of bad debts to credit sales
d. Terms of credit

38. Caloocan, Inc. uses 40,000 butterballs per year. On average, butterball cost P12, and the annual
cost of carrying one in inventory is P1.50. The cost to place an order is P50. Based on this
information, what is Caloocan’s annual ordering cost for purchasing butterball if they observe the
EOQ model?
a. P1,155
b. P1,731
c. P1,225
d. P2,450

39. Which of the following statement is correct?

a. If AFN is equals to zero, the percentage of increase in sales at this level is called sustainable
growth rate.
b. If AFN has a negative value, the company could source the additional funds internally
c. Both statements are true
d. None of the above

40. A company had P500,000 of sales for the year just ended and is projecting sales of P600,000 for
the coming year. For every P1 increase in sales, 38% of additional financing is required for the
purchase of additional assets.The projected profit margin is 20% and 60% of profits will be
retained for reinvestment in the company. The amount of additional external financing needed by
the company in the coming year is:
a. P38,000
b. P86,000
c. P110,000
d. None of the above

41. The concept of float is best defined as:

a. Checks written by the corporation that are still outstanding
b. Checks written to the corporation that are still outstanding
c. The difference between the firms’s recorded cash balance and the amount credited to the
firm’s account by the bank
d. What a boat does in a water

42. The Nelmina Corporation, an entertainment ticketing service, is considering the following means of
speeding cash flow for the corporation.

 Electronic Transfer. Items over P25,000 would be electronically transferred; it is

estimated that 700 items of this type would be made each month at a cost of P18 each,
which would result in increased interest earnings of P14,000 per month.
 Lock Box System. This would cost P25 per month for each of its 170 banks and would
result in interest savings of P5,240 per month.
 Drafts. Drafts would be used to pay for ticket refunds based on 4,000 refunds per month
at a cost of P2.00 per draft, which would result in interest savings of P6,500 per month.
 Bank Float. Bank float would be used for the P1,000,000 in checks written each month.
The bank would charge a 2% fee for this service, but the corporation will earn P22,000 in
interest on the float.

Which of these methods of speeding cash flow should Rolling Stone Corporation adopt?
a. Lock box and electronic transfer only.
b. Bank float and electronic transfer only.
c. Lock box, drafts, and electronic transfer only.
d. Lock box, bank float, and electronic transfer only.
Samson’s Sailboats Inc. recently reported the following 2002 income statement (in millions of

Sales P1,225
Operating costs 875
EBIT P 350
Interest 70
EBT P 280
Taxes (40%) 112
Net income P 168

Dividends (33.333%) P 56
Addition to retained earnings P 112

The company is forecasting a 30 percent increase in 2003 sales, and it expects that its year-end
operating costs will equal 75 percent of sales. Gourmet’s tax rate, interest expense, and dividend
payout ratio are all expected to remain constant.

43. What is Samson’s projected 2003 net income (in millions of pesos)?
a. P1,056
b. P143.4
c. P196.88
d. P775

44. All of the following are alternative marketable securities suitable for investment except
a. U.S. Treasury bills.
b. Europesos.
c. Commercial paper.
d. Convertible bonds.

Use the following information to answer the next eight questions:

The following information pertains to Greenwich Company. Assume that all balance sheet amounts
represent both average and ending balance figures.
Assume that all sales were on credit.

Cash and short-term investments P40,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total Assets P295,000

Liabilities and Stockholder’s Equity

Current liabilities P60,000
Long-term liabilities 85,000
Stockholder’s equity – common 150,000
Total Liabilities and stockholders’ equity P295,000

Income Statement
Sales P85,000
Cost of goods sold 45,000
Gross margin 40,000
Operating expenses 20,000
Net income P20,000

Number of shares of common stock 6,000

Market price of common stock P20
Dividends per share .90
Cash provided by operations P30,000

45. What is the current ratio for this company?

a. 1.42 b. 0.80 c. 1.16 d. 0.60

46. What is the receivable turnover for this company?

a. 2.8 times b. 2 times c. 3.4 times d. 3 times

47. What is the inventory turnover for this company?

a. 2 times b. 2.25 times c. 1 time d. 0.44 time

48. What is the return on assets for this company?

a. 6.8% b. 10.5% c. 11.7% d. 26.7%

49. What is the profit margin for this company?

a. 42.86% b. 18.75% c. 23.5% d. 15%
50. What is the return on common stockholder’s equity for this company?
a. 13.3% b. 5% c. 23.3% d. 53.3%

51. What is the price earnings ratio for this company?

a. 6 times c. 8 times
b. 2.5 times d. 4 times

52. A beverage stand can sell either softdrinks or coffee on any given day. If the stand sells
softdrinks and the weather is hot, it will make P2,500; if the weather is cold, the profit will be
P1,000. If the stand sells coffee and the weather is hot, it will make P1,900; if the weather is
cold, the profit will be P2,000. The probability of cold weather on a given day at this time is
60%. The expected payoff if the vendor has perfect information is
a. P3,900 c. P2,200
b. P1,360 d. P1,960

The following data apply to the next four questions

The Frame Supply Company has just acquired a large account and needs to increase its working
capital by P100,000. The controller of the company has identified the four sources of funds given

A. Pay a factor to buy the company's receivables, which average P125,000 per month and have
an average collection period of 30 days. The factor will advance up to 80% of the face value of
receivables at 10% and charge a fee of 2% on all receivables purchased. The controller estimates
that the firm would save P24,000 in collection expenses over the year. Assume the fee and
interest are not deductible in advance.
B. Borrow P110,000 from a bank at 12% interest. A 9% compensating balance would be
C. Issue P110,000 of 6-month commercial paper to net P100,000. (New paper would be issued
every 6 months.)
D. Borrow P125,000 from a bank on a discount basis at 20%. No compensating balance would be
required. Assume a 360-day year in all of your calculations.

53. The cost of Alternative A. is

a. 10.0% c. 13.2%
b. 12.0% d. 16.0%

54. The cost of Alternative B. is

a. 9.0% c. 13.2%
b. 12.0% d. 21.0%

55. The cost of Alternative C. is

a. 9.1% c. 18.2%
b. 10.0% d. 20.0%

56. The cost of Alternative D. is

a. 20.0% c. 40.0%
b. 25.0% d. 50.0%

57. Which one of the following credit terms is most apt to produce the shortest accounts receivable
a. net 10 c. 2/20, net 45
b. 2/10, net 30 d. 3/5, net 10

58. Baker Industries offers credit terms of 2/20, net 60 to Charlie Co. Charlie Co. has an inventory
period of 15 days and an operating cycle of 45 days. Given this, which of the following
statements are correct? (I. The credit terms of Baker Industries are too restrictive; II. If Charlie
Co. forgoes the discount on its purchases, it will have a negative cash cycle; III. Baker
Industries is financing the accounts receivable of Charlie Co; IV. If Charlie Co. is delinquent in
its payment, Baker Industries should be concerned)
a. III and IV only
b. I and II only
c. I, III, and IV only
d. II, III, and IV only

59. Which one of the following statements is correct concerning the accounts payable period?
a. Managers generally prefer a shorter accounts payable period than a longer one.
b. The accounts payable period is equal to the cost of goods sold divided by the average
accounts payable.
c. Extending the accounts payable period effectively decreases the cash needs of a firm.
d. Increasing the accounts payable turnover rate increases the accounts payable period.

60. Which of the following statements concerning correlation coefficients is (are) true?
a. A correlation of zero indicates that the returns on two stocks move exactly opposite each
b. A correlation of +1 indicates that the returns on two stocks move exactly like each other.
c. If you combine two stocks with zero correlation in a portfolio, it is possible to totally
eliminate all risk from the portfolio composed of the two stocks.
d. Both A and B

61. Which one of the following factors might cause a firm to increase the debt in its financial
a. An increase in the corporate income tax rate
b. Increased economic uncertainty
c. An increase in the Bangko Sentral Funds rate
d. An increase in the price/earnings ratio

62. In general, it is more expensive for a company to finance with equity capital than with debt
capital because
a. Long-term bonds have a maturity date and must therefore be repaid in the future
b. Investors are exposed to greater risk with equity capital
c. The interest on debt is a legal obligation
d. Equity capital is in greater demand than debt capital

63. Mariday, Inc. paid a cash dividend to its common shareholders over the past twelve months of
P2.20 per share. The current market value of the ordinary shares is P40 per share and investors
are anticipating the common dividend to grow at a rate of 6 percent annually. The costs to issue
new ordinary shares will be 5 percent of the market value. The cost of a new ordinary shares
issue will be
a. 11.50% c. 11.83%
b. 11.79% d. 12.14%

64. Which of the following statements is false?

a. New development and transformations could result to management consulting becoming
more specialzed
b. It is predicted that a consultant’s orientation will be towards being an insight-provider,
creator and sharer of information
c. As consultants grow in number, they tend to develop more sophisticated means of
marketing their services
d. Because of the more stringent and technical qualifications required in management
consulting, more not-so-bright graduates of accounting, management and business schools
will be attracted to careers in this area.
65. The purpose of the balanced scorecard is best described as helping an organization
a. Develop customer relations
b. Mobilize employee skills for continuous improvements in processing capabilities, quality, and
response times
c. Introduce innovative products and services desired by target customers.
d. Translate an organization’s mission and strategy into a set of performance measures that
help to implement the strategy

66. Which of the following techniques can be used to determine the variable and fixed portion of a
company’s costs?
a. Game theory c. Regression analysis
b. Queuing theory d. Poisson analysis

67. There are several capital budgeting decision models that do not use discounted cash flows. What
is the name of the simple technique that calculates the total time it will take to recover, using
cash inflows from operations, the amount of cash invested in a project?
a. Recovery period c. External rate of return
b. Payback model d. Accounting rate of return

68. For P450,000, Maleen Corporation purchased a new machine with an estimated useful life of five
years with no salvage value. The machine is expected to produce cash flow from operations, net
of 40 percent income taxes, as follows:

First year P160,000

Second year 140,000
Third year 180,000
Fourth year 120,000
Fifth year 100,000

Maleen will use the sum-of-the-years-digits’ method to depreciate the new machine as follows:
First year P150,000
Second year 120,000
Third year 90,000
Fourth year 60,000
Fifth year 30,000

The present value of 1 for 5 periods at 12 percent is 3.60478. The present values of 1 at 12
percent at end of each period are:
End of:
Period 1 0.89280
Period 2 0.79719
Period 3 0.71178
Period 4 0.63552
Period 5 0.56743

Had Maleen used straight-line method of depreciation instead of declining method, what is the
difference in net present value provided by the machine at a discount rate of 12 percent?
a. Increase of P 9,750 c. Decrease of P24,376
b. Decrease of P 9,750 d. Increase of P24,376

69. Diamond Company is planning to buy a coin-operated machine costing P400,000. For book and
tax purposes, this machine will be depreciated P80,000 each year for five years. Diamond
estimates that this machine will yield an annual inflow, net of depreciation and income taxes, of
P120,000. Diamond’s desired rate of return on its investments is 12%. At the following
discount rates, the NPVs of the investment in this machine are:

Discount Rate NPV

12% +P3,258
14% + 1,197
16% - 708
18% - 2,474

Diamond’s expected IRR on its investment in this machine is

a. 3.25% c. 16.00%
b. 12.00% d. 15.30%

70. What is a blockchain?

a. A distributed ledger on a peer to peer network
b. A type of cryptocurrency
c. An exchange
d. A centralized ledger