1. The primary source of funds for the firm in 2003 is (See Figure 301.) A. net profits after taxes. B. an increase in notes payable. C. an increase in longterm debt. D. an increase in inventory. 2. Common stock dividends paid in 2003 amounted to ______. (See Figure 301.) A. P100 B. P50 C. P600 D. P150 3. The firm may have increased longterm debts to finance (See Figure 301.) A. an increase in gross fixed assets. B. an increase in current assets. C. a decrease in notes payable. D. an increase in current assets, an increase in gross fixed assets, and a decrease in notes payable. 4. Sources of funds for 2003 totaled ______. (See Figure 301.) A. P600 B. P700 C. P800 D. P950 5. The firm ______ fixed assets worth ______. (See Figure 301.) A. purchased; P0 B. purchased; P200 C. sold; P0 D. sold; P200 6. The firm's cash flow from operations is ______. (See Figure 301.) A. P350 B. P300 C. P150 D. P950 7. Use of funds for 2003 totaled (See Figure 301.) A. P600 B. P700 C. P800 D. P950 8. The smallest use of funds for the firm in 2003 is (See Figure 301.) A. a decrease in notes payable. B. an increase in inventory. C. dividends. D. a decrease in longterm debts. 9. The depreciation expense for 2003 is ______. (See Figure 301.) A. P0 B. P200 C. P50 D. P1,000 10. PETRON Corporation sold a fixed asset for P100,000, which was also its book value. This is A. an investment cash flow and a source of funds. B. an operating cash flow and a source of funds. C. an operating cash flow and a use of funds. D. an investment cash flow and a use of funds. 11. SMART Corporation raises P500,000 in longterm debt to acquire additional plant capacity. This is considered A. an investment cash flow. B. a financing cash flow. C. a financing cash flow and investment cash flow, respectively. D. a financing cash flow and operating cash flow, respectively. 12. All of the following are financing cash flows EXCEPT A. sale of stock. B. payment of stock dividends. C. increasing debt. D. repurchasing stock. 13. All of the following are operating cash flows EXCEPT A. net profit/earnings after tax. B. increase or decrease in current liabilities. C. increase or decrease in fixed assets. D. depreciation expense. 14. For the year ended December 31, 2003, GINEBRA had cash flow from operating activities of P10,000, cash flow from investment activities of P4,000, and cash flow from financing activities of P9,000. The Statement of Cash Flows would show a A. net decrease of P3,000 in cash and marketable securities. B. net decrease of P5,000 in cash and marketable securities. C. net increase of P3,000 in cash and marketable securities. D. net increase of P5,000 in cash and marketable securities. 15. For the year ended December 31, 2003, Talk and Text had cash flow from operating activities of P20,000, cash flow from investment activities of P15,000, and cash flow from financing activities of P10,000. The Statement of Cash Flows would show a A. net increase of P5,000 in cash and marketable securities. B. net decrease of P5,000 in cash and marketable securities. C. net decrease of P15,000 in cash and marketable securities. D. net increase of P25,000 in cash and marketable securities. 16. For the year ended December 31, 2003, ALASKA had cash flow from operating activities of P12,000, cash flow from investment activities of $10,000, and cash flow from financing activities of P4,000. The Statement of Cash Flows would show a A. net decrease of P18,000 in cash and marketable securities. B. net decrease of P6,000 in cash and marketable securities. C. net increase of P6,000 in cash and marketable securities. D. net increase of P2,000 in cash and marketable securities. 17. Jollibee has just ended the calendar year making a sale in the amount of P200,000 of merchandise purchased during the year at a total cost of P150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. One possible problem this firm may face is A. low profitability. B. insolvency. C. inability to receive credit. D. high leverage. 18. San Miguel Corp. has just ended the calendar year making a sale in the amount of P10,000 of merchandise purchased during the year at a total cost of P7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow for the year are A. P3,000 and P10,000 respectively. B. P3,000 and P7,000 respectively. C. P7,000 and P3,000 respectively. D. P3,000 and P7,000 respectively. 19. The financial planning process begins with _____ financial plans that in turn guide the formation of _____ plans and budgets. A. shortrun; longrun B. shortrun; operating C. longrun; strategic D. longrun; shortrun 20. Shortrun financial plans and longrun financial plans generally cover periods ranging from _____ years and _____ years, respectively. A. one to two, two to ten B. two to ten, one to two C. one to five, five to ten D. one to three, three to five
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
1. The primary source of funds for the firm in 2003 is (See Figure 301.)
A. net profits after taxes.
B. an increase in notes payable.
C. an increase in longterm debt.
D. an increase in inventory.
2. Common stock dividends paid in 2003 amounted to ______. (See Figure 301.)
A. P100
B. P50
C. P600
D. P150
3. The firm may have increased longterm debts to finance (See Figure 301.)
A. an increase in gross fixed assets.
B. an increase in current assets.
C. a decrease in notes payable.
D. an increase in current assets, an increase in gross fixed assets, and a decrease in notes payable.
4. Sources of funds for 2003 totaled ______. (See Figure 301.)
A. P600
B. P700
C. P800
D. P950
5. The firm ______ fixed assets worth ______. (See Figure 301.)
A. purchased; P0
B. purchased; P200
C. sold; P0
D. sold; P200
6. The firm's cash flow from operations is ______. (See Figure 301.)
A. P350
B. P300
C. P150
D. P950
7. Use of funds for 2003 totaled (See Figure 301.)
A. P600
B. P700
C. P800
D. P950
8. The smallest use of funds for the firm in 2003 is (See Figure 301.)
A. a decrease in notes payable.
B. an increase in inventory.
C. dividends.
D. a decrease in longterm debts.
9. The
A. P0
B. P200
C. P50
D. P1,000
10. PETRON Corporation sold a fixed asset for P100,000, which was also its book value. This is
A. an investment cash flow and a source of funds.
B. an operating cash flow and a source of funds.
C. an operating cash flow and a use of funds.
D. an investment cash flow and a use of funds.
11. SMART Corporation raises P500,000 in longterm debt to acquire additional plant capacity. This is considered
A. an investment cash flow.
B. a financing cash flow.
C. a financing cash flow and investment cash flow, respectively.
D. a financing cash flow and operating cash flow, respectively.
12. All of the following are financing cash flows EXCEPT
A. sale of stock.
B. payment of stock dividends.
C. increasing debt.
D. repurchasing stock.
13. All of the following are operating cash flows EXCEPT
A. net profit/earnings after tax.
B. increase or decrease in current liabilities.
C. increase or decrease in fixed assets.
D. depreciation expense.
14. For the year ended December 31, 2003, GINEBRA had cash flow from operating activities of P10,000, cash flow from investment activities of P4,000, and cash flow from financing activities of P9,000. The Statement of Cash Flows would show a
A. net decrease of P3,000 in cash and marketable securities.
B. net decrease of P5,000 in cash and marketable securities.
C. net increase of P3,000 in cash and marketable securities.
D. net increase of P5,000 in cash and marketable securities.
15. For the year ended December 31, 2003, Talk and Text had cash flow from operating activities of P20,000, cash flow from investment activities of P15,000, and cash flow from financing activities of P10,000. The Statement of Cash Flows would show a
A. net increase of P5,000 in cash and marketable securities.
B. net decrease of P5,000 in cash and marketable securities.
C. net decrease of P15,000 in cash and marketable securities.
D. net increase of P25,000 in cash and marketable securities.
16. For the year ended December 31, 2003, ALASKA had cash flow from operating activities of P12,000, cash flow from investment activities of $10,000, and cash flow from financing activities of P4,000. The Statement of Cash Flows would show a
A. net decrease of P18,000 in cash and marketable securities.
B. net decrease of P6,000 in cash and marketable securities.
C. net increase of P6,000 in cash and marketable securities.
D. net increase of P2,000 in cash and marketable securities.
17. Jollibee has just ended the calendar year making a sale in the amount of P200,000 of merchandise purchased during the year at a total cost of P150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. One possible problem this firm may face is
A. low profitability.
B. insolvency.
C. inability to receive credit.
D. high leverage.
18. San Miguel Corp. has just ended the calendar year making a sale in the amount of P10,000 of merchandise purchased during the year at a total cost of P7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow for the year are
A. P3,000 and P10,000 respectively.
B. P3,000 and P7,000 respectively.
C. P7,000 and P3,000 respectively.
D. P3,000 and P7,000 respectively.
19. The financial planning process begins with _____ financial plans that in turn guide the formation of _____ plans and budgets.
A. shortrun; longrun
B. shortrun; operating
C. longrun; strategic
D. longrun; shortrun
20. Shortrun financial plans and longrun financial plans generally cover periods ranging from _____ years and _____ years, respectively.
A. one to two, two to ten
B. two to ten, one to two
C. one to five, five to ten
D. one to three, three to five
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