UNIVERSITY OF LUZON

College of Accountancy
Refresher Course in Accountancy
1st PRE-BOARD EXAMINATION
MANAGEMENT SERVICES
AUGUST 3, 2022

INSTRUCTION: USE THE GOOGLE FORM ANSWER SHEET.

1. Strategic planning, as practiced by most modern organizations, includes all of the following
except:
a. top-level management participation.
b. a long-term focus.
c. strategies that will help in achieving long-range goals.
d. analysis of the current month’s actual variances from budget.
e. identification of long-term key variables including external influences.

2. Cost accounting can best be described as?

a. Internal reporting for use in planning and controlling routine operations.
b. Internal reporting for use in management planning and control, and external reporting to the
extent the product costing function satisfies external reporting requirements.
c. External reporting to the government, various outside parties, and shareholders.
d. Internal and external reporting that may be used in making nonroutine decisions and in
developing plans and policies.

3. In relation to the peso amount of sales, which of the following classifications is appropriate for
sales salaries and direct labor costs?
Sales Salaries Direct Labor
a. Mixed cost Fixed Cost
b. Fixed Cost Variable cost
c. Variable cost Variable Cost
d. Mixed Cost Variable Cost

Next two questions are based on the following.

For budget and control purposes, the controller of Mabun Manufacturing Co. is in the process of
estimating the variable cost per hour and the fixed cost per month of operating automated
equipment. Data for the past 12 months of operations have been gathered as follows:

No. of observation 12
Sum of the hours 840
Sum of the costs 9,000
Sum of the hours multiplied by the costs 655,000
Sum of the hours squared 63,800
Using the least squares method in cost segregation,

4. What was the variable cost per hour to operate the machine?
a. P5.25 b. P10.25 c. P5.00 d. P12.00

5. What was the fixed cost per month?

a. P360.00 b. P400.00 c. P900.00 d. P750.00

6. Adelphi Company has a higher degree of operating leverage than Baker Company. Which of the
following is true?
a. Adelphi has higher variable expense
b. Adelphi is more profitable
c. Adelphi is more risky
d. Adelphi’s profits are less sensitive to percentage changes in sales

1
UNIVERSITY OF LUZON
College of Accountancy
7. An unexplained sum of the squares in a simple linear regression is 400 and the total sum of the
squares is 1,000. What is r2?
a. 40% b. 50% c. 60% d. 16%

8. In order to be useful to managers, management accounting reports should possess all of the
following characteristics except:
a. provide objective measures of past operations and subjective estimates about future
decisions.
b. be prepared in accordance with generally accepted accounting principles.
c. be provided at any time management needs information.
d. be prepared to report information for any unit of the business to support decision making.

9. Sales and costs data for Mariposa Company’s new product are as follows:
Sales (P22.50 per unit) P225,000
Variable mfg. costs per unit 12.00
Variable selling and adm. costs per unit 4.50
Annual fixed costs:
Manufacturing P37,500
Selling and adm. P22,500
There was no inventory at the beginning of the year. Normal capacity is 12,500 units. During
the year 12,000 units were manufactured. The cost of ending inventory would be
Direct costing Absorption costing
a. P30,000 P37,500
b. 24,000 30,000
c. 37,500 30,000
d. 24,000 37,500

10. Driver Company manufactures two product. Data concerning these products are shown below:
Product A Product B
Total monthly demand (in units) 1,000 200
Sales price per unit P400 P500
Contribution margin ratio 30% 40%
Relative sales mix 80% 20%
If fixed costs are equal to P320,000, what amount of total sales revenue is needed to break even?
a. P914,286 b. P457,143 c. P320,000 d. P1,000,000

11. Which of the following is not a major assumption underlying CVP analysis?
a. All costs incurred by a firm can be separated into their fixed and variable components.
b. The product selling price per unit is constant at all volume levels.
c. Operating efficiency and employees productivity are constant at all volume levels.
d. For multiproduct situations, the sales mix can vary at all volume levels.

Next six questions are based on the following.

Franklin Glass Works' production budget for the year ended November 30 was based on
200,000 units. Each unit requires two standard hours of labor for completion. Total overhead
was budgeted at P900,000 for the year, and the fixed overhead rate was estimated to be P3.00
per unit. Both fixed and variable overhead are assigned to the product on the basis of direct
labor hours. The actual data for the year ended November 30 are presented as follows.
Actual production in units 198,000
Actual direct labor hours 440,000
Actual variable overhead P352,000
Actual fixed overhead P575,000

12. The standard hours allowed for actual production for the year ended November 30 total
a. 247,500. b. 396,000. d. 495,000.
c. 400,000.
UNIVERSITY OF LUZON
College of Accountancy
13. Franklin's variable overhead efficiency variance for the year is
a. P33,000 unfavorable. c. P66,000 unfavorable.
b. P35,520 favorable. d. P33,000 favorable.

14. Franklin's variable overhead spending variance for the year is

a. P20,000 unfavorable. c. P22,000 unfavorable.
b. P19,800 favorable. d. P20,000 favorable.

15. Franklin's fixed overhead spending variance for the year is

a. P19,000 favorable. c. P5,750 favorable.
b. P25,000 favorable. d. P25,000 unfavorable.

16. The fixed overhead applied to Franklin's production for the year is
a. P484,200. b. P575,000. c. P594,000.
d. P600,000.

17. Franklin's fixed overhead volume variance for the year is

a. P6,000 unfavorable. c. P25,000 favorable.
b. P19,000 favorable. d. P55,000 unfavorable.

18. A company produces two products, A and B. A sells for P16 and has variable costs of P10. B sells
for P12 and has variable costs of P8. Fixed Costs for the period are P35,000. Normally four units
of A are sold for every two units of B units. How many units of B must be sold if the company
expects profits of P50,000?
a. 15,947 b. 10,637 c. 5,313 d. 35,000

19. A basic tenet of variable costing is that fixed overhead costs should be currently expensed. What
is the basic rationale behind this procedure?
a. Fixed overhead costs will occur whether or not production occurs and so it presents a
clearer picture of how changes in production volume affect costs and income.
b. Fixed overhead costs are generally immaterial in amount and the cost of assigning the
amounts to specific products would outweigh the benefits.
c. Allocation of fixed overhead costs is arbitrary at best and could lead to erroneous decisions
by management.
d. Fixed overhead costs are uncontrollable and should not be charged to a specific product.

20. Net income reported under absorption costing will exceed net income reported under variable
costing for a given period if:
a. Production equals sales for that period.
b. Production exceeds sales for that period.
c. Sales exceed production for that period.
d. The variable overhead exceeds the fixed overhead.

21. What factor related to manufacturing costs causes the difference in net earnings computed
using absorption costing and net earnings computed using variable costing?
a. Absorption costing considers all costs in the determination of net earnings, whereas variable
costing considers only direct costs.
b. Absorption costing "inventories" all direct costs, but variable costing considers direct costs
to be period costs.
c. Absorption costing "inventories" all fixed costs for the period in ending finished goods
inventory, but variable costing expenses all fixed costs.
d. Absorption costing allocates fixed costs between cost of goods sold and inventories, and
variable costing considers all fixed costs to be period costs.

22. Radici, Inc. has done a cost analysis for their production of refractors. The following activities
and cost drivers have been developed:
Activity Cost Formula
Maintenance P55,000 + P6 per machine hour
UNIVERSITY OF LUZON
College of Accountancy
Machining P105,000 + P1 per machine hour
Inspection P45,000 + P10.50 per batch
Setups P2,500 per batch
Purchasing P40,000 + P15 per purchase order
What is the total budgeted cost if there was production of 25,000 refractors that will require
9,500 machine hours, 15 batches and 900 purchase orders?
a. P362,657.50 c. P245,000
b. P247,500 d. P117,657.50

23. The standards for direct materials in making a certain product are 20 pounds at P0.75 per
pound. During the past period, 56,000 units of product were made and the material quantity
variance was P30,000 U. The number of pounds of direct material used during the period
amounted to:
a. 1,080,000 b. 1,160,000 c. 1,200,000 d. 784,000

24. Todco planned to produce 3,000 units of its single product, Teragram, during November. The
standard specifications for one unit of Teragram include six pounds of material at P.30 per
pound. Actual production in November was 3,100 units of Teragram. The accountant computed
a favorable material purchase price variance of P380 and an unfavorable material quantity
variance of P120. Based on these variances, one could conclude that:
a. more materials were purchased than were used.
b. more materials were used than were purchased.
c. the actual cost of material was less than the standard cost.
d. the actual usage of material was less than the standard allowed.
e. the actual cost and usage of material were both less than standard.

25. The flexible budget for the month of May 2021 was for 9,000 units with direct material at P15
per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output
for the month was 8,500 units with P127,500 in direct material and P77,775 in direct labor
expense. Direct labor hours of 6,375 were actually worked during the month. Variance analysis
of the performance for the month of May would show a (n):
a. favorable material quantity variance of P7,500.
b. favorable direct labor efficiency variance of P1,275.
c. unfavorable direct labor efficiency variance of P1,275.
d. unfavorable material quantity variance of P7,500.
e. unfavorable direct labor rate variance of P1,275.

26. Franklin Glass Works’ production budget for the year ended November 30, 2021, was based on
200,000 units. Each unit requires two standard hours of labor for completion. Total overhead
was budgeted at P900,000 for the year, and the fixed overhead rate was estimated to be P3.00
per unit. Both fixed and variable overhead are assigned to the product on the basis of direct
labor hours. The actual data for the year ended November 30, 2021, are presented here.
Actual production in units 198,000
Actual direct labor hours 440,000
Actual variable overhead P352,000
Actual fixed overhead P575,000
Franklin’s variable overhead efficiency variance for the year ended November 30, 2021, is:
a. P33,000 unfavorable. d. P33,000 favorable.
b. P35,520 favorable. e. P35,200 unfavorable
c. P66,000 unfavorable.

27. The following data is given for the Walker Company:

Budgeted production 26,000 units
Actual production 27,500 units
Materials:
Standard price per oz P6.50
Standard ounces per completed unit 8
Actual ounces purchased and used in production 228,000
UNIVERSITY OF LUZON
College of Accountancy
Actual price paid for materials P1,504,800

The direct material quantity variance is:

a. P22,800F c. P52,000F
b. P22,800U d. P52,000U

28. The Joyner Corporation purchased and used 126,000 board feet of lumber in production, at a
total cost of P1,449,000. Original production had been budgeted for 22,000 units with a
standard material quantity of 5.5 board feet per unit and a standard price of P12 per board foot.
Actual production was 23,000 units.
Compute the material price variance.
a. P63,000F c. P6,000F
b. P63,000U d. P6,000U

29. The data below relate to the month of April for Monroe, Inc., which uses a standard cost system
and a two-variance analysis of factory overhead:
Actual total direct labor P54,200
Actual hours used 16,500
Standard hours allowed for good output 16,250
Direct labor rate variance--debit P 1,400
Actual total overhead P53,200
Budgeted fixed costs P12,000
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor hour P 3.25
Variable overhead rate per standard direct labor hour P 2.50
What was Monroe's controllable variance for April?
a. P1,100 favorable c. P575 favorable
b. P1,100 unfavorable d. P575 unfavorable

30. During 2021, Excel Co. supplied hospitals with a comprehensive diagnostic kit for P120. At a
volume of 80,000 kits, Excel Co. had a fixed costs of P1 million and operating income before
income taxes of P200,000. Because of an adverse legal decision, Excel’s 2022 liability insurance
increased by P1.2 million over 2021. Assuming the volume and other costs are unchanged, what
should the 2022 price be if Excel is to make the same P200,000 operating income before income
taxes?
a. P120.00 b. P135.00 c. P150.00 d. P240.00

31. Bailey Co. currently has only one store. The firm is considering opening a second store which
will cost an additional P10,000 of fixed expense per year while providing additional sales
revenue of P75,000. Variable expenses are currently 60% of sales; this percentage will not
change if the new store is opened. By how much will net income increase if the new store is
opened?
a. P45,000 b. P35,000 c. P30,000 d. P20,000

32. The conventional break-even chart used by accountants and businessmen does not assume
a. that prices will remain fixed.
b. that fixed costs will remain the same irrespective of changes in volume.
c. that some costs are semivariable.
d. that all costs are linear and continuous.

33. A company's value chain reflects the

a. organizational levels of authority and responsibility.
b. linked set of activities that increase the value of products or services.
c. sales distribution network for the company's products and services.
d. stages of production from raw materials to finished goods.

34. King Co., a manufacturer operating at 95% of capacity, has been offered a new order at P7.25
per unit requiring 15% of capacity. No other use of the 5% current idle capacity can be found.
UNIVERSITY OF LUZON
College of Accountancy
However, if the order were accepted, the subcontracting for the required 10% additional
capacity would cost P7.50 per unit. The variable cost of production for King on a per unit basis
follows:

Materials P3.50
Labor 1.50
Variable overhead 1.50
Total P6.50

In applying the contribution margin approach to evaluating whether to accept the new order,
assuming subcontracting, what is the average variable cost per unit?
a. P6.83
b. P7.17
c. P7.25
d. P7.50

35. Suppose that regression is run on 30 months of data. The dependent variable is overhead, and
the independent variable is machine hours. The coefficient of determination is 0.78. Which of
the following is true?
a. Machine hours and overhead are negatively correlated.
b. The coefficient of correlation is approximately 0.61.
c. Machine hours account for about 61 percent of the variation in overhead.
d. The coefficient of correlation is approximately 0.78.
e. Factors other than machine hours account for approximately 22 percent of the variation in
overhead.

The next three questions are based on Brannen Corporation, which manufactures and sells T-
shirts imprinted with college names and slogans. Last year, the shirts sold for P7.50 each, and the
variable cost to manufacture them was P2.25 per unit. The company needed to sell 20,000 shirts to
break even. The net income last year was P5,040. Brannen’s expectation for the coming year include
the following:

 The sales price of the T-shirts will be P9.

 Variable cost to manufacture will increase by one-third.
 Fixed costs will increase by 10%.
 The income tax rate of 40% will be unchanged.

36. The selling price that would maintain the same contribution margin rate as last year is:
a. P10.00.
b. P9.75.
c. P9.00.
d. P8.25.

37. The number of T-shirts Brannen Corporation must sell to break even in the coming year is:
a. 22,000.
b. 20,000.
c. 19,250.
d. 17,500.

38. If Brannen wishes to earn P22,500 in net income for the coming year, the company’s sales
volume in dollars must be:
a. P257,625.
b. P229,500.
c. P213,750.
d. P207,000.

The next four questions are based on the following information. Webb Company manufactures a
single electronic product called Micronix. This unit is a batch-density monitoring device attached to
UNIVERSITY OF LUZON
College of Accountancy
large industrial mixing machines used in chemical manufacturing. Micronix sells for P900 per unit.
The following variable costs are incurred to produce each Micronix device:

Direct labor P180

Direct material 240
Factory overhead 105
Total variable production costs P525
Marketing costs 75
Total variable costs P600

Webb’s income tax rate is 40%, and annual fixed costs are P6,600,000. Except for an operating loss
incurred in the year of incorporation, the firm has been profitable over the last five years.

39. If Webb Company achieves a sales and production volume of 8,000 units, the annual before-tax
income (loss) will be:
a. P2,400,000.
b. P1,780,000.
c. P(420,000).
d. P(4,200,000).

40. The annual sales volume required for Webb Company to break even is:
a. 8,400 units.
b. 11,000 units.
c. 14,000 units.
d. 22,000 units.

41. A significant change in Webb Company’s production technology caused a 10% increase in
annual fixed costs and a 20% unit cost increase in the direct labor component as a result of
higher skilled direct labor. However, this change permitted the replacement of a costly imported
component with a domestic component. The effect was to reduce unit material costs by 25%.
However, there has been no change in the product selling price. After incorporating these
changes, Webb Company’s contribution margin would be:
a. 34%.
b. 36%
c. 69%.
d. 64%.

42. A significant change in Webb Company’s production technology caused a 10% increase in
annual fixed costs and a 20% unit cost increase in the direct labor component as a result of
higher skilled direct labor. However, this change permitted the replacement of a costly imported
component with a domestic component. The effect was to reduce unit material costs by 25%.
However, there has been no change in the product selling price. After incorporating these
changes, Company’s break-even point [rounded to the nearest whole unit] would increase
(decrease) by:
a. 407 units.
b. (407 units).
c. 1,604 units.
d. 3,960 units.

43. A fixed cost that would be considered a direct cost is:

a. a cost accountant’s salary when the cost objective is a unit of product.
b. the rental cost of a warehouse to store inventory when the cost objective is the Purchasing
Department.
c. a production supervisor’s salary when the cost objective is the Production Department.
d. Board of Directors’ fees when the cost objective is the Marketing Department.
e. the cost of power when the cost objective is the Internal Audit Department.

44. The difference between variable costs and fixed costs is?
UNIVERSITY OF LUZON
College of Accountancy
a. Variable costs per unit change in variable increments while fixed costs per unit change in
equal increments.
b. Total variable costs are variable over the relevant range and fixed over the long term while
fixed costs never change.
c. Variable costs per unit are fixed over the relevant range while fixed costs per unit are
variable over the relevant range.
d. Variable costs per unit fluctuate while fixed cost per unit stays the same.

45. A manufacturing company prepares income statement using both absorption and variable
costing methods. At the end of a period, actual sales revenues, total gross margin, and total
contribution margin approximated budgeted figures, whereas net income was substantially
below the budgeted amount. There were no beginning or ending inventories. The most likely
explanation of the net income shortfall is that, compared to budget, actual:
a. Sales price and variable cost had declined proportionately.
b. Sales prices had declined proportionately more than variable costs
c. Manufacturing fixed costs had increased
d. Selling and administrative fixed expense had increased

46. The extreme observations of cost-activity relationships are known as:

a. missing data
b. outliers
c. discretionary costs
d. dependent variables

47. The following information pertains to Brian Stone Corporation:

Beginning fixed manufacturing overhead in inventory P60,000

Ending fixed manufacturing overhead in inventory 45,000
Beginning variable manufacturing overhead in inventoryP30,000
Ending variable manufacturing overhead in inventory 14,250

Fixed selling and administrative costs P724,000

Units produced 5,000 units
Units sold 4,800 units

What is the difference between operating incomes under absorption costing and variable
costing?
a. P750
b. P7,500
c. P15,000
d. P30,750

Next two questions are based on the following:

RedHall Corporation produces chemicals used in the cleaning industry. During the previous
month, it incurred P300,00 of joint costs in producing 60,000 units of PM-12 and 40,000 units of
AM-36. RedHall uses the units of production method to allocate joint costs. Currently, PM-12 is
sold at split-off point for P3.50 per unit. Flanker Corporation has approached RedHall to
purchase all of the production of PM-12 after further processing. The further processing will cost
P90,000.

48. Concerning PM-12, which one of the following alternatives is most advantageous?
a. RedHall should process further and sell to Flanker if the total selling price per unit after
further processing is greater than P3.00, which covers the joint costs.
b. REdHall should continue to sell at split-off point unless Flanker offers at least P4.50 per unit
after further processing costs, which covers RedHall’s total costs.
c. REdHall should process further and sell to Flanker if the total selling price per unit after
further processing is greater than P5.00
UNIVERSITY OF LUZON
College of Accountancy
d. REdHall should process further and sell to Flanker if the total selling price per unit after
further processing is greater than P5.25, which maintains the same gross profit percentage.

49. Assume that REdHall agreed to sell PM-12 to Flanker for P5.50 per unit after further processing.
During the first month of the production, RedHall sold 50,000 units with 10,000 units remaining
in inventory at the end of the month. With respect to PM-12, which one of the following
statements is correct?
a. The operating profit last month was P50,000 and the inventory value is P15,000.
b. The operating profit last month was P50,000, and the inventory value is P45,000.
c. The operating profit last month was P125,000, and the inventory value is P30,000.
d. The operating profit last month was P200,000, and the inventory value is P30,000.

50. Alix Company has budgeted its factory overhead at P15,875 when it operates at 70% of normal
capacity. At 80% capacity, the budgeted overhead is P17,000. What is the flexible budget of
factory at 96% capacity?
a. P18,840
b. P18,800
c. P20,400
d. P21,771

51. Which of the following is best identified with a standard cost system?
a. Management by objective
b. Management by exception
c. Management by perception
d. Management by intuition

52. Joy Company is preparing a flexible budget for 2018 and requires a breakdown of the cost of
steam used in its factory into the fixed and variable elements. The following data on the cost of
steam used and direct labor hours worked are available for the last six months of 2017:
Months Cost of Steam Direct labor hours
July P 15,850 3,000
August 13,400 2,050
September 16,370 2,900
October 19,800 3,650
November 17,000 2,670
December 18,500 2,650
Total P101,000 16,920

Assuming that Joy uses the high-low point method of analysis, the estimated variable cost of
steam per direct-labor hour should be:
a. P6.00
b. P4.00
c. P5.82
d. P5.42

53. In its first year of operations, a firm had P50,000 of fixed operating costs. It sold 10,000 units at
a P10 unit price and incurred variable costs of P4 per unit. If all prices and costs will be the
same in the second year and sales are projected to rise to 25,000 units, what will the degree of
operating leverage be in the second year.
a. 1.25
b. 1.50
c. 2.0
d. 6.0

54. The purpose of management advisory services is:

a. to improve the quality of information or its context for decision makers.
b. to improve the client’s use of its capabilities and resources to achieve the objectives of the
organization.
UNIVERSITY OF LUZON
College of Accountancy
c. to express an opinion on the financial statements.
d. to provide information for internal decision making.

55. Which of the following statements is true?

a. Under zero-based budgeting, a manager is required to start at zero budget levels each period, as if
the programs involved were being initiated for the first time
b. The primary purposes of the cash budget is to show the expected cash balance at the end of the
budget period
c. Budget data are generally prepared by top management and distributed downward in an
organization
d. The budget committee is responsible for preparing detailed budget figures in an organization

56. Simple regression differs from multiple regression in that

a. Multiple regression uses all available data to estimate the cost function whereas simple regression
only uses simple data
b. Simple regression uses only one dependent variable and multiple regression uses more than one
dependent variable
c. Simple regression is limited to the used of only the dependent variables and multiple regression can
use both dependent and independent variables
d. Simple regression uses only one independent variable and multiple regression more than one
independent variable

57. Considering budgeting concepts and principles, which of the following statements is not applicable?
a. The only difference between a flexible budget and a static budget is that a flexible budget does not
contain fixed costs.
b. A flexible budget is geared toward a range of activity rather than toward a single level of activity
c. Although it is effective in measuring production control, a static budget is not effective measuring
costs control
d. The flexible budget is often used as a basis for preparing the pre-determined overhead.

58. When providing consulting services, the CPA acts primarily as a(n):
a. independent accountant.
b. expert on compliance with industry standards.
c. technology specialist
d. objective advisor on the use of information

59. Division A is considering a project that will earn a rate of return which is greater than the
imputed interest charge for the invested capital, but less than division’s historical return on
invested capital. Division B is considering a project that will earn a rate of return that is greater
than the division’s historical return on invested capital, but less than the imputed interest
charge for invested capital. If the objective is to maximize residual income, should these
divisions accept or reject their projects?

A B
a. Accept Accept
b. Reject Accept
c. Reject Reject
d. Accept Reject

60. Which of the ff. statements regarding transfer pricing is false?

a. When idle capacity exists, there is no opportunity cost to producing intermediate products
for another division.
b. Market-based transfer prices should be reduced by any costs avoided by selling internally
rather than externally.
c. No contribution margin is generated by the transferring division when variable-cost based
transfer prices are used.
d. The goal of transfer pricing is to provide segment managers with incentive to maximize the
profits of their divisions.
UNIVERSITY OF LUZON
College of Accountancy
61. Which of these is the perspective of the balanced scorecard that indicates whether the company’s
strategy and operations add value to shareholders?
a. financial perspective.
b. process perspective.
c. learning and growth perspective.
d. customer perspective.

Next five questions are based on the following information.

A proposed investment is not expected to have any salvage value at the end of its 5-year life. For present
value purposes, cash flows are assumed to occur at the end of each year. The company uses a 12% after
tax target rate of return.

Purchase Cost Annual Net Annual

After-tax Cash
Year and Book Value Flows Net Income
0 500,000.00 - -
1 336,000.00 240,000.00 70,000.00
2 200,000.00 216,000.00 78,000.00
3 100,000.00 192,000.00 86,000.00
4 36,000.00 168,000.00 94,000.00
5 - 144,000.00 102,000.00

Discount factors for a 12% rate of return:

Year Present value of 1 at the Present Value of an Annuity of P1
End of each period at the end of each period
1 .89 .89
2 .80 1.69
3 .71 2.40
4 .64 3.04
5 .57 3.61
6 .51 4.12

62. The accounting rate of return based on the average investment is:

a. 84.9%
b. 34.4%
c. 40.8%
d. 12%

63. The net present value is:

a. P304,600
b. P212,320
c. (P70,000)
d. P712,320

64. The traditional payback period is:

a. over 5 years
b. 2.23 years
c. 1.65 years
d. 2.83 years

65. The profitability index is:

a. .61
b. .42
c. .86
d. 1.425
UNIVERSITY OF LUZON
College of Accountancy

66. Which statement about the internal rate of return of the investment is true?
a. The IRR is exactly 12%
b. The IRR is over 12%
c. The IRR is under 12%
d. No information about the IRR can be determined

67. Preferred shares are characteristics of both common shares and bonds. Preferred shares have
<List A> like common shares and <List B> like bonds.

List A List B
a. A maturity date A fixed periodic payment
b. No maturity date No fixed periodic payment
c. A maturity date No fixed periodic payment
d. No maturity date A fixed periodic payment

68. Which of the following is usually not a feature of cumulative preferred shares?
a. Has a priority over common shares with regard to earnings.
b. Has priority over common shares with regard to assets.
c. Has voting rights.
d. Has the right to receive dividends in arrears before common share dividends can be paid.

69. From the viewpoint of the investor, which of the following securities provides the least risk?
a. Mortgage bond
b. Subordinated debenture
c. Income bond
d. Debentures

70. Residco Inc. expects net income of P800,000 for the next fiscal year. It is targeted and
current capital structure is 40% debt and 60% common equity. The director of capital
budgeting has determined that the optimal capital spending for the next year is 1.2 million. If
Residico follows a strict residual dividend policy, what is the expected dividend payout ratio
for next year?
a. 90.0%
b. 66.7%
c. 40.0%
d. 10.0%

END OF EXAMINATION.