MAS QE Question 6
Financial leverage or trading on equity refers to:
Question 1
You inherited P10 million that you plan to invest Response: Use of borrowed capital to increase
and retire on the income. You can buy a 5% return to owners
Treasury Bill that ensures you of earning P500,000
interest. How much is the expected rate of return? Question 7
Sweetie Factory is a sought-after pastry shop due
Response: 5% to their famous cheesecakes, which they sell for
P500 per box. As the company gains market share,
Question 2 they raise the price of their cheesecakes to
The weighted average cost of capital (WACC) for a P600/box. As a result of the price increase, the
firm is 14% when its cost of debt capital is 10%, quantity of their product sold fell from 1,000 to 700
and the cost of equity capital is 20%. Assuming boxes per month.
there are no taxes, what proportion of the firm is
financed with equity? What is the price elasticity of demand?
Response: 80% (Wrong answer) Response: 1.94
Correct: 70 or 90 Question 8
During their initial month of operations, Jewel Fine
Question 3
Jewelry was surprised as they sold 1,000 pairs of
Jon Bulac has a disposable income and
necklaces at the price of P2,000 each. Increasing
consumption of P45,000 and P42,000. His
demand encouraged them to supply 2,500 in the
disposable income increased by P2,000 and he
following month at the price of P3,000 per piece.
now consumes P43,000 per month. What is Jon’s
What is the price elasticity of supply?
marginal propensity to consume?
Response: 3
Response: 0.50
Question 9
Question 4
In the pharmaceutical industry, where a person
The real risk-free rate of interest is 3.5%, and it is
with diabetes must have insulin no matter the cost
expected to remain constant over time. Inflation is
and where there is no other substitute, the
expected to be 3% per year for the next three (3)
diabetic’s demand curve is best described as:
years and 2.5% per year for the next five (5) years.
The maturity risk premium is equal to 0.3× (t-1)%, Response: Elastic
where t = the bond’s maturity. The default risk
premium for a Baa2-rated bond is 1.08%. What is Question 10
the quoted interest rate on a 6-year Baa2-rated A company has the following data for the month-
corporate bond with a liquidity premium of 0.05%? end: EBIT worth P283,000; Sales amounting to
P3,000,000; Net Income amounting to P137,000;
Response: 9.03% and Total Assets of P2,000,000. Which of the
following is the operating margin?
Question 5
Response: 9.43%
1. The following ratios were computed from
Torres Company’s financial statements for Question 11
2023: It describes the relationship between long-term
and short-term rates.
Return on asset
Response: Term structure of interest rates
Asset turnover
Question 12
Which scenario demonstrates “shortage” based on
What was the company’s profit margin the law of supply and demand?
ratio?
Response: Buyers demand more of a product at
Response: 15% (1/1.6) x 0.24 = 15% a given price than producers are willing to
supply.
Question 13
In comparing the current ratios of two (2)
companies, why is it invalid to assume that the
company with the higher current ratio is the better
company?
Response: A high current ratio may indicate
inefficient use of various assets and liabilities. What is the Net Present Value (NPV) if the discount
rate is 12%?
Question 14
Response: P184,160.00
Abaniko House Inc. has exclusive rights and
complete control over the production and Question 20
distribution of abaca-made products in the It provides a detailed implementation guideline for
Philippines. Which type of monopoly is being the management that is based on the corporate
described? strategy in helping meet the firm’s corporate
Response: Resource objectives.
Response: Operating Plan
Question 15
This statistical measure compares the asset’s Question 21
realized excess return to its standard deviation over Which of the following pertains to the difference
a specified period. between Gross National Product (GNP) and Gross
Response: Sharpe Ratio Domestic Product (GDP)?
Response: GNP measures what is produced and
Question 16
earned by a nation’s people and property, while
This happens when a firm produces the maximum
GDP measures what is produced and earned in
output possible for a given combination of inputs
the domestic economy.
and existing technology.
Response: Technical efficiency Question 22
A quick ratio of 2.0, current assets of P5,000 and
Question 17 inventory of P2,000 have current liabilities of
Ligaya Dimagiba receives an income of P18,000 _____.
per month and spends P15,500. Jake’s income
Response: P1,500
increased by P2,000 per month, and he now
spends P16,500 per month. What is Ligaya's Question 23
marginal propensity to save? It is the amount of cash that the firm generates
Response: 1.40 from its current operations.
Response: Net Operating Profit After Tax
Question 18
(NOPAT)
An increase in government purchases of goods
and services of P20 billion causes equilibrium gross Question 24
domestic product (GDP) to rise by P80 billion. What
is the marginal propensity to consume out of Tyron Corporation has the following capital
disposable income assuming that total taxes and structure, which it considers to be optimal:
investment are constant?
Response: 4.00 or 0.75
Debt 25%
Question 19
Phil Corporation desires to purchase new Preferred
15%
equipment for its manufacturing process. The Stock
equipment costs P200,000 and would result in the
following cash inflow: Common
60%
Equity
100%
Response: P3,532,500
Question 27
Tyron's expected net income this year is Ultron Corporation enters into a project that
P54,385.72, its established dividend pay-out ratio is requires it to invest P1,050,000. The said project
30%, its tax rate is 30%, and investors expect future will produce an annual net cash inflow of P350,000
earnings and dividends to grow at a constant rate of for six (6) years. The desired rate of return of Ultra-
4%. Tyrell paid a dividend of P3.05 per share last B from the said project is 12%. The present value
year, and its stock currently sells for P52.00 per of the ordinary annuity and simple interest for six
share. Tyron can obtain new capital in the following (6) years is 4.111 and 0.507, respectively. What is
ways: the Net Present Value (NPV) of the said investment
of Ultron?
a. New preferred stock with a dividend of
P11.50 can be sold to the public at P78.00 Response: P388,850
per share.
b. Debt can be sold at an interest rate of 8%. Question 28
Purpose-Driven Finance (PDF) Corp. issued a new
What is the weighted average cost of capital series of bonds on January 1, 2020. The bonds
(WACC) of Tyron Corporation? were sold at par (P1,000), had an 11% coupon
rate, and will mature in six (6) years on January 1,
Response: 8.10%
2026. Coupon payments are made semi-annually
Question 25 (on June 30 and December 31). Interest has fallen
Zion Corporation issued a new series of bonds on to 8%, resulting in P1,054.45 price of the bond as
January 1, 2019. The bonds were sold at par of December 31, 2023. What is the current yield of
(P1,000), had a 10% coupon rate, and will mature the said bond as of December 31, 2023?
in five (5) years on January 1, 2024. Coupon Response: 3.79%
payments are made at the end of each quarter.
What will be the price of bonds on January 1, 2021, Question 29
if the interest has fallen to 9%? Palawan, Inc. sells with terms 3/10, net 30 days.
Net credit sales for the year are P2,400,000, and
Response: P1,026.04
the average accounts receivable balance is
Question 26 P210,000. Assuming 360 days per year, what is the
average collection period?
On May 1 of the current year, the cash-in-bank of
Migo Enterprise has a balance of P5,750,000. The Response: 31 days
following is the summary of transactions:
Question 30
It is a bond that pays an initial interest rate for the
period then a higher rate after that period
engagement in the sale of goods or services for a
profit.
Response: Step-up bond
Question 31
This type of monopoly exists when a firm can
Credit sales are to be collected as follows:
provide a commodity at a lower cost per unit than
a. 20% in the month of sale (5% discount is allowed
potential entrants.
for prompt settlement)
b. 60% after 30 days after the month of sale Response: Natural
c. 15% after 60 days after the month of sale
d. 5% is to be written off after 90 days after the Question 32
month of sale. Tommy Trucking has P20 million in assets, and its
tax rate is 40%. Its basic earning power (BEP) ratio
How much is the budgeted balance of the accounts is 10%, and its return on assets (ROA) is 4%. What
receivable of Migo Enterprise on May 1, net of the is its times-interest-earned (TIE) ratio? For the final
amount written-off, if it started its operation on answer, round off to the whole number.
March 1 of the current year?
Response: 3.0 times
Question 33 Actual 25
Woo Corporation is offered trade credit terms of process
3/15, net 45. The firm does not take advantage of hours
the discount, and it pays the account after 67 days.
Using a 365-day year, what is the nominal annual What is the company's variable overhead spending
cost of not taking the discount? variance?
Response: 21.71% Response: P50 favorable
Question 34 Question 38
Greenwoods Shopping Center is known for its What is the present value of P12,000 received four
cheap prices and a vast volume of men’s shoes, (4) years from today with an 8% rate?
ranging from running gears to formal dress shoes. Response: P8,820.36
Despite all these, a noticeable factor of this place is
the presence of many buyers and sellers, as well Question 39
as the numerous stores selling identical products. This is achieved when the firm produces its chosen
Which characteristic of perfect competition is being level of output at the lowest possible total cost.
described?
Response: Economic efficiency
Response: Each firm in the market produces
identical products Question 40
If you deposited P350,000 in a bank account that
Question 35 pays 5% interest semi-annually, how much will be
Which of the following is considered in calculating in your account after six (6) years? Round off your
the Gross Domestic Product (GDP) using the final answer into two (2) decimal places.
income approach?
Response: P470,711.09
Response: Interest
Question 41
Question 36 Money Plus Corp., a financing company, went into
Sweetie Factory is a sought-after pastry shop due an initial public offering last year. As the Chief
to their famous cheesecakes, which they sell for Financial Officer (CFO) of the said corporation, you
P500 per box. As the company gains market share, need to find possible investment alternatives to
they raise the price of their cheesecakes to maintain the company’s liquidity ratio as required
P600/box. As a result of the price increase, the by the Bangko Sentral ng Pilipinas (BSP). Instead
quantity of their product sold fell from 1,000 to 700 of offering your previously issued long-term
boxes per month. securities to the public, you decided to enter into
repurchase agreements. Which specific market will
Using the concept of price elasticity, what is the the company enter?
percent (%) change in quantity?
Response: Money Market
Response: -35.29%
Question 42
Question 37 This decision-maker takes the less risky of the two
A company has gathered the following information (2) given decisions that have the same expected
from a recent production run: value.
Standard P10 Response: Risk averse
variable
overhea Question 43
d rate DRACO Corp. has an Earnings Before Interest and
Actual P8 Taxes (EBIT) of P19,000,000, depreciation of
variable P3,000,000, and a 30% tax rate. It needs to spend
overhea P10,000,000 on new fixed assets and another
d rate P11,500,000 to increase its current assets. It
Standard 20 expects its accruals to increase by P2,500,000,
process accounts payable to increase by P4,200,000, and
hours notes payable to increase by P5,300,000. The
firm’s current liabilities only consist of accounts
payable, accruals, and notes payable. What is the Question 49
company’s free cash flow (FCF)? Assuming you were given the following accounts
paid-in capital and retained earnings. What is the
Response: P1,500,000 correct formula to compute for the stockholders'
equity?
Question 44
The Stork Company has P2,598,500 in current Response: Paid-in Capital + Retained Earnings
assets and P1,076,250 in current liabilities. Its initial
inventory level is P326,350, and it will raise funds Correct:
as additional short-term notes payable and use
them to increase inventory. How much can its Question 50
short-term debt (notes payable) increase without Which of the following will be reflected under the
pushing its quick ratio below 2.0? In computing for financing activities section in a statement of cash
the percentage, do not round off. For the final flows?
answer, round off to the whole number. Response: Increase in notes payable
Response: P119,650
Question 45
It is now July 1, 20x7. Today you will deposit
P160,500 into a savings account that pays 9%. If
the bank compounds interest quarterly, how much
will you have in your account on January 1, 20x9?
Response: P183,423.48
Question 46
It states that markets are sometimes in
disequilibrium because of unanticipated changes in
demand or cost conditions.
Response: Frictional profit theory
Question 47
Stock M has the following historical returns for the
past three (3) years:
Year Stock M’s Return
2x17 28.10
2x18 26.13
2x19 22.10
What is Stock M’s standard deviation on its
historical returns?
Response: 3.06%
Question 48
This pricing objective aims to maximize sales while
making a normal profit or break-even profit.
Response: Sales maximization
