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1.

The ABC Company is trying to decide between keeping an existing


machine and replacing it with a new machine. The old machine was
purchased just two years ago for P50,000 and had an expected life of 10
years. It now costs P1,000 a month for maintenance and repairs due to a
mechanical problem. A new machine is being considered to replace it at a
cost of P60,000. The new machine is more efficient and it will only cost
P200 a month for maintenance and repairs. The new machine has an
expected life of 10 years. In deciding to replace the old machine, which of
the following factors, ignoring income taxes, should ABC not consider?
a. Any estimated salvage value on the old machine
b. The original cost of the machine
c. The estimated useful life of the new machine
d. The lower maintenance cost of the new machine
2. A corporation manages inventory performance by monitoring its inventory
turnover. Selected financial records for the corporation are as follows:

Year 1 Year 2 Year 3


Annual Sales P1,262,500 P1,062,500 P1,459,000
Gross Annual 45% 30% 40%
Profit Percentage

The beginning finished goods inventory fro year 2 was 20% for year 2 sales.
The ending finished goods inventory for year 2 was 18% of year 3 sales.
What was the corporation’s inventory turnover for year 2?

a. 1.34 c. 3.03
b. 2.83 d. 3.13
3. Which of the following costing methods will yield the lowest
inventory value?

a. Absorption
b. Hybrid
c. Process
d. Variable
4. Each of the following periods is included when computing a firm’s
target cash conversion cycle, except the

a. Inventory conversion period


b. Payables deferral period
c. Average collection period
d. Cash discount period
5. A corporation obtains a loan of P200,000 at an annual rate of 12%.
The corporation must keep a compensating balance of 20% of any
amount borrowed on deposit at the bank, but normally does not have
a cash balance account with the bank. What is the effective cost of
the loan?

a. 12.0%
b. 13.3%
c. 15.0%
d. 16.05
6. A supply curve illustrates the relationship between

a. Price and quantity supplied


b. Price and consumer tastes
c. Price and quantity demanded
d. Supply and demand
Items 7 and 8 are based on the following information:
Assume that Jayson Industries is considering investing in a project with the
following characteristics:

Initial Investment P500,000


Add’l Investment in Working Capital 10,000
Cash flows before income taxes for yrs 1 through 5 140,000
Yearly Tax Depreciation 90,000
Terminal Value of Investment 50,000
Cost of Capital 10%
PV of P1 received after 5 yrs discounted at 10% 0.621
PV of an ordinary annuity of P1 for 5 years at 10% 3.791
Income Tax Rate 30%
Investment life 5 years

Assume that all cash flows come at the end of the year.
7. What is the amount of the after tax-cash flows in year 2?

a. P140,000
b. P125,000
c. P98,000
d. P70,000
8. What is the net present value of the investment?

a. P175,000
b. P58,000
c. P1,135
d. (P12,340)
9. Limitations of an activity based costing system include which of the
following?
a. Control of overhead cost is enhanced
b. Activity-based costing systems are less reliable
c. The expense of obtaining cost data is relatively high
d. It eliminates arbitrary assignment of overhead costs
Items 10 and 11 are based on the following information:
Ethan, Inc. has seasonal demand for its products and management is
considering whether level production or seasonal production should be
implemented. The firm’s short term interest cost is 8%, and management
has developed the following information to make the decision:

Alternative 1 Alternative 2
Level Production Seasonal Production
Average Inventory P2,000,000 P1,500,000
Production Costs P6,000,000 P6,050,000
10. Which alternative should be accepted and how much is saved over
the other alternative?
a. Alternative 1 with P500,000 in savings
b. Alternative 2 with P50,000 in savings
c. Alternative 2 with P10,000 in savings
d. Alternative 1 with P10,000 in savings
11. At what rate of short-term interest rate would the two alternatives
have the same cost?

a. 6%
b. 9%
c. 10%
d. 12%
12. Jackson Co. is considering a project that will use 2,000 square feet
of storage space at one of its facilities to store used equipment. What
will determine Jackson’s opportunity cost?

a. The net present value of the project


b. The internal rate of return of the project
c. The value of the best next use of the space
d. The depreciation expense on the space
13. A company with P4.8 million in credit sales per year plans to relax
its credit standards, projecting that this will increase credit sales by
P720,000. The company’s average collection period for new
customers is expected to be 75 days, and the payment behavior of
the existing customers is not expected to change. Variable costs are
80% of sales. The firm’s opportunity cost is 20% before taxes.
Assuming a 360-day year, what is the company’s benefit (loss)
from the planned change in credit terms?

a. P0 c. P144,000
b. P28,800 d. P120,000
14. Assume a firm is expected to pay a dividend of P5.00 per share this
year. The firm along with the dividend is expected to grow at a rate
of 6%. If the current market price of the stock is P60 per share, what
is the estimated cost of equity?

a. 8.3%
b. 6.0%
c. 14.3%
d. 12.0%
15. As a business owner you have determined that the demand for your
product is inelastic. Based upon this assessment you understand that

a. Increasing the price of your product will increase total revenue


b. Decreasing the price of your product will increase total revenue
c. Increasing the price of your product will have no effect on total
revenue
d. Increasing the price of your product will increase competition

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