NATIONAL FEDERATION OF JUNIOR PHILIPINNE INSTITUTE OF ACCOUNTANTS – NATIONAL CAPITAL REGION
MANAGEMENT ADVISORY SERVICES
C
1. The contribution margin ratio always decreases when the a. Breakeven point increases b. Breakeven point decreases c. Variable costs as a percentage of net sales increase d. Variable costs as a percentage of net sales decrease 2. EU Corporation has preferred stock with a market value of P 107 per share, a face value of P 100 per share, underwriting costs of P 5 per share, and annual dividends of P 10. EU’s tax rate is 30%. What is EU’s approximate cost of capital for preferred stock?
C
a. b. c. d.
6.9% 9.3% 9.8% 10.5%
3. If a company tends to be more conservative with respect to its working capital policy, then it would C
tend to have a(n)
a. Increase in the normal operating cycle b. Decrease in the normal operating cycle c. Increase in the ratio of current liabilities d. Decrease in the ratio of current liabilities
assets
to
current
assets
to
current
4. UN Company uses a predetermined factory overhead application rate based on direct labor cost. UN’s budgeted factory overhead was P 300,000, based on a budgeted volume of 25,000 direct labor hours, at a standard direct labor rate of P 6.00 per hour. Actual factory overhead amounted to P 310,000, with actual direct labor cost of P 162,500. Factory overhead was: B a. P 12,500 over-applied b. P 15,000 over-applied c. P 12,500 under-applied d. P 15,000 under-applied A
5. Two goods, A1 and B2, are substitutes. What will an increase in the price of B2 cause? a. The demand curve for A1 to shift right b. The supply curve for A1 to shift right c. The demand curve for A1 to shift left d. The supply curve for A1 to shift left
6. Which of the following is generally categorized as a value-added activity? a. Rework b. Material moves c. Filing tax returns d. Operating production equipment 7. The residual income of a company segment is positive when C a. Sales variances are favorable b. Costs variances are unfavorable c. Minimum RoI is lower than the segment’s RoI d. Minimum RoI is based on company’s cost of capital D
Items 8 and 9 are based on the following information
NFJPIA-NCR Inventory January for over-applied sold account
Page 2 of 12 balances and manufacturing cost data for the month of Barcelona Company. Under Barcelona’s cost system, any or under-applied overhead is closed to the cost of goods at the end of the calendar year. Inventories: Direct materials Work-in-process Finished goods
Beginning P 15,000 7,500 32,500
Cost of goods manufactured Factory overhead applied Direct materials used Actual factory overhead D
C
Ending P 20,000 10,000 25,000
Month of January P 257,500 75,000 95,000 72,000
8. What was the amount of direct material purchases during January? a. P 90,000 b. P 95,000 c. P 97,500 d. P 100,000 9. How much direct labor cost was incurred during January? a. P 85,000 b. P 87,500 c. P 90,000 d. P 93,000 10. For working capital management purposes, the difference between the cash balance per company books and the cash balance per bank statement is called ______
A
a. b. c. d.
Float Lockbox system Bank reconciliation Compensating balance
11. The following information regarding a capital project was given for consideration: Estimated life 10 years Cost of capital 20% Initial investment P 6,500 Cash inflows per year P 1,000 Straight-line depreciation P 325 What is the unadjusted accounting rate of return (ARR) of the capital project?
B
a. b. c. d.
15.38% 20.77% 30.77% Cannot be determined from the given information
12. When would a retailer tend to decrease the safety stock of inventory? a. Sales variability increases b. Transportation time increases c. Sales volume permanently increases d. Cost of carrying inventory increases 13. Which of the following is NOT a component used in calculating the cost of capital? C a. The cost of common stock b. The cost of long-term debt c. The cost of short-term debt d. The cost of retained earnings D
14. In an income statement prepared as an internal report using the variable costing method, variable selling expenses would
B
a. Be considered in computing gross profit and operating income b. Be considered in computing operating income and contribution margin c. Be considered in computing operating income but not considered
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Page 3 of 12 in computing contribution margin d. Be considered in computing contribution margin but considered in computing gross profit and operating income
not
15. Milan Company has average daily cash collections of P 3 million, based on a 360-day year. A new system is estimated to reduce the average collection period by two days without affecting sales. The new system’s annual cost is P 100,000 plus 0.01% of collections. Milan estimates that it would earn 6% on additional funds. What is the estimated annual net benefit from the new system?
A
a. b. c. d.
P P P P
152,000 180,000 260,000 360,000
16. Lourdes Company’s present current ratio is 4 times. What transaction will most likely cause the C
current ratio of the company to increase?
a. b. c. d.
Purchase of inventory on credit Collection of trade receivables Payment of current tax obligations Borrowing of cash based a 12-month loan
Items 17 and 18 are based on the following information
The manufacturing capacity of Tour Company’s facilities is 30,000 units of product a year. summary of operating results for calendar Year 1 is as follows:
Sales (P 50 per unit) Variable manufacturing and selling costs Contribution margin Fixed costs Operating income
C
A
P 900,000 (495,000) 405,000 (247,500) P 157,500
17. What is Tour’s margin of safety in year 1? a. 11,000 units b. 9,000 units c. 7,000 units d. 5,000 units 18. Assume a tax rate of 25%, how many more units shall be sold in year 2 to earn an after-tax profit of
C
C
P 236,250?
a. b. c. d.
25,000 units 21,500 units 7,000 units 3,500 units
19. If a company’s cash conversion cycle increases, then the company a. Becomes more profitable b. Incurs more shortage or stockout costs c. Increases its investment in working capital d. Reduces its payable deferral period (age of payable) 20. Monaco Company manufactures products N-Lex and S-Lex from a joint process. Product N-Lex has been allocated P 5,000 of total joint costs of P 40,000 for the 1,000 units produced. N-Lex can be sold at the split-off point for P 6 per unit, or it can be processed further with additional costs of P 2,000 and sold for P 10 per unit.
C
If N-Lex is processed further and sold, the result would be an:
a. b. c. d.
Over-all loss of P Over-all loss of P Additional gain of Additional gain of
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2,000 3,000 P 2,000 from further processing P 4,000 from further processing
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Page 4 of 12 21. When a flexible budget is used, an increase in production levels within the relevant range would D a. Change total fixed costs b. Not change total variable costs c. Not change fixed costs per unit d. Not change variable costs per unit 22. Monte Carlo Company is considering a change in collection procedures that would result in an increase of the average collection period from 28 to 36 days. Monte Carlo anticipates that next year’s sales to be P 9 million and that 80% of the sales will be on credit. Monte Carlo estimates short-term interest rates at 6% and uses a 360-day year for decision making. What minimum savings in collection costs would the procedure change have to generate to offset the increased investment in accounts receivable?
B
a. b. c. d.
P P P P
1,200 9,600 12,000 33,600
23. Spain Company plans to replace an old machine with a new one. For capital budgeting purposes, B
which of the following shall be considered in the calculation of initial cost of net investment?
a. b. c. d.
Cost Cost Cost Cost
of the old machine and salvage value of the new machine of the new machine and salvage value of the old machine and salvage value of the old machine and salvage value of the new machine
24. Sagrada Company must maintain a compensating balance of P 50,000 its checking account as one of the conditions of its short-term bank loan of P 500,000. Sagrada’s checking account earns interest. Ordinarily, Sagrada would maintain a P 20,000 balance the account for transaction purposes. C
B
in 6% 2% in
What is the loan’s approximate effective interest rate?
a. b. c. d.
5.88% 6.17% 6.25% 6.38%
25. What is characteristic of a period of rising inflation? a. Increases the purchasing power of money b. Increases the price level and decreases the purchasing power of money c. Increases the price level, which benefits anyone who is owed a specific amount of money d. Benefits anyone who is owed a specific amount of money and harms anyone who owes specific amount 26. Italy provides the following information for its standard material cost for one unit of its finished product: STANDARD: 4 meters @ P 2.00 per meter = P 8 per unit Actual data also showed the following data:
Materials, January 1 Materials, December 31 Materials purchases for the year Average purchase price for the year
10,000 meters 15,000 meters 220,000 meters P 2.50
How many finished units were produced if materials quantity variance is computed as P 30,000 unfavorable?
A
a. 50,000 units b. 50,750 units
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Page 5 of 12
c. 51,250 units d. 52,000 units C
27. Why is equity capital generally more expensive than debt financing? a. Interest on bonds is a legal obligation b. Dividends fluctuate more than interest rates c. Investors expect to be paid more due to exposure to higher risk d. Investors have a greater demand for equity investments than for debt investments Items 28 and 29 are based on the following information
France Company provides the following information based on its accounting records:
Current assets Noncurrent assets Current liabilities Noncurrent liabilities Pretax operating profit Pretax cost of equity Pretax cost of debt Tax rate
P 2,000,000 7,000,000 1,000,000 4,000,000 1,500,000 15% 5% 40%
The carrying amounts and market values of above amounts do not differ significantly. B
A
28. What is France Company’s weighted average cost of capital (WACC)? a. 6% b. 9% c. 10% d. Cannot be determined from the given information 29. What is France Company’s economic value added (EVA)? a. P 180,000 b. P 120,000 c. P 90,000 d. P 0 30. Nice Company’s average cost is decreasing over a range of increased output. What is Nice experiencing?
A
a. b. c. d.
Economies of scale Diminishing returns Technological efficiency Decreasing fixed charges
31. Which of the following is LEAST likely a part of inventory costs under variable C
costing?
a. b. c. d.
Supplies used in factory operations Output-based salary of plant workers Annual rental of manufacturing facilities Cost of blueberries used in the producing berry juices
32. Paris Company produces and sells three (3) products with the following data: Product F1 Product F2 Product F3 Sales P 30,000 P 60,000 P 10,000 Variable costs 24,000 40,000 5,000
B
Assuming that the total fixed costs are P 18,600 and the sales mix is proportional to peso sales, how much should be the sale of product F1 to break-even?
a. b. c. d.
P P P P
6,000 18,000 36,000 60,000
33. Which of the following is generally considered as a cash outflow and classified as a financing activity? D a. Payment of interests on indebtedness MAS – NCR Frontliners 2017
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Page 6 of 12 b. Settlement of current tax liabilities c. Issuance of company bonds at a discount d. Acquisition of company’s own shares at treasury
34. UK Company wants to determine the optimum safety stock level for drug Metro-2. The annual carrying cost of Metro-2 is 25% of the inventory investment. The inventory investment averages P 10 per unit. The stock out cost is estimated at P 2 per unit. UK orders Metro-2 20 times annually. UK defines the total costs of safety stock as carrying costs plus expected stock out costs. With 100 units of safety stock, there is a 15% probability of a 30-unit stock out per order cycle. D
B
What is the total annual cost of the 100 units of Metro-2 safety stock?
a. b. c. d.
P P P P
250 259 277 430
35. A CPA firm’s primary purpose for performing Management Advisory Services (MAS) is to a. Prepare the CPA firm for the changing needs and requirements of business community b. Provide advice and technical assistance which will enable a client to conduct its business more effectively c. Establish the CPA firm as a consultant, which enable the CPA firm to ensure future viability and growth d. Enable staff members of the CPA firm to acquire the necessary continuing education in all areas of business 36. The following operating data refer to London Company’s 6-day workweek: Sum of the hours 174 Sum of the costs 225 Sum of the hours x costs 3,414 Sum of the squared value of costs 4,259
D
D
Which equation shall be used under the least-squares method?
a. b. c. d.
3,414 3,414 225 = 225 =
= 225 = 174 174 a 6 a +
a + 4,259 b a + 4,259 b + 3,414 b 174 b
37. All of the following are factors considered in credit policy administration, EXCEPT: a. Terms of trade b. Credit standards c. Collection policy d. Amount of receivable 38. Bath Company expects next year’s net income to be P 2 million. Bath’s current capital structure is 30% debt, 30% preferred equity, and 40% common equity. Next year, Bath plans to issue debt and common stock as needed to maintain 30:40 ratio, not issue more preferred stock. Interest payments on Bath’s 10,000 4%, P 1,000 par value bonds are current. Bath can issue up to P 1 million more 4% bonds at face value. Bath’s marginal tax rate is 30%. There are no dividends in arrears on Bath’s 10,000 shares 6%, P 1,000 par value cumulative preferred stock. Optimal capital spending for next year is estimated at P 1.4 million.
B
Using a strict residual dividend policy, what is the approximate estimated common stock dividend payout ratio for the next year? a. 16% b. 30% c. 35% d. 70%
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Page 7 of 12 39. A primary objective in measuring productivity is to improve operations either by using fewer inputs to produce the same output, or to produce: D a. More effectively b. With fewer constraints c. More outputs with more inputs d. More outputs with the same inputs 40. Eiffel Company is preparing its cash budget for November. Eiffel expects 50% of credit sales to be paid in the month of sale. 30% in the month following the sale, and the remainder paid two months after the month of sale. Eiffel expects the cash and credit sales to be:
November October September August
Cash P 17,000 ??? P 15,000 P 18,000
Credit P 100,000 P 90,000 P 80,000 P 95,000
Assuming no bad debts and a projected total cash inflow of P 107,000 in October, what is Eiffel’s expected October cash sales?
B
a. b. c. d.
P P P P
20,000 19,000 16,000 14,000
41. A branch reported return on sales of 15% and return on investment of 24%. What was the investment turnover of the branch?
C
a. b. c. d.
0.39 0.625 1.6 3.6
42. Which of the following non-value-added costs associated with manufactured work in process B
inventory is most significant?
a. The cost of labor that cannot be traced to any individual product b. The cost of moving, handling, and storing any individual product c. The cost of materials that cannot be traced to any individual product d. The cost of additional resources consumed to produce any individual product
Items 43 and 44 are based on the following information Big Ben buys tennis balls at P 25 per dozen from its wholesaler. Big Ben will sell 35,000 dozens of tennis balls evenly throughout the year. Big Ben desires a 12% percent return on investment (cost of capital) on its inventory investment. In addition, rent, insurance and related taxes for each dozen tennis balls in inventory amounts to P 0.50. The cost per order is P 8. Big Ben uses a 350-day year. 43. What is the average number of tennis balls does Big Ben maintain? C a. 200 tennis balls b. 400 tennis balls c. 2,400 tennis balls d. 4,800 tennis balls A
C
44. How often shall Big Ben place the orders within a year? a. Every 4 days b. Every 5 days c. Every 6 days d. Every week 45. An income statement is typically included in the management performance report of a. Cost center and profit center b. Revenue center and profit center c. Profit center and investment center
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Page 8 of 12 d. Revenue center, profit center and investment center
46. Ayala Avenue invested in a four-year project.
Ayala’s cost of capital is 8 percent.
information on the project is as follows:
Year 1 2 3 4
Post-tax cash inflow P 2,000 2,200 2,400 2,600
Additional
PV of P 1 at 8% 0.926 0.857 0.794 0.735
Assuming a net present value of P 2,500, what is the project’s payback period?
A
B
a. b. c. d.
Between Between Between Between
2 years and 2.5 2.5 years and 3 3 years and 3.5 3.5 years and 4
years years years years
47. A market shortage usually occurs when a government sets a a. Price ceiling above equilibrium price b. Price ceiling below equilibrium price c. Price floor above equilibrium price d. Price floor below equilibrium price 48. England Company is concerned about the company’s account receivable turnover ratio.
The company currently offers customers terms of 3/10, net 30. Which of the following strategies would most likely improve the company’s accounts receivable turnover ratio?
D
a. b. c. d.
Changing Changing Pledging Entering
customer terms to 1/10, net 30 customer terms to 3/20, net 30 the accounts receivable to a finance company into a factoring agreement with a finance company
49. For quality costs purposes, sales returns and allowances due to a quality deficiency shall be classified as a (an): C a. Appraisal costs b. Prevention costs c. External failure costs d. Internal failure costs 50. The first order of 500 units incurred P 120,000 of labor costs; the next order of 500 units required an additional P 72,000 of labor costs. What percentage of learning occurred?
A
D
a. b. c. d.
80% 85% 90% 95%
51. The internal rate of return (IRR) of a capital investment project is the discount rate at which the a. Present value of cash outflows shall be maximum b. Present value of cash inflows shall be minimum c. Cost of capital shall be zero d. Profitability index is 1.0 52. UAE Company produces two automotive parts, carburetors and air filters. Both products are made in the same manufacturing facilities but are produced under different processes. To accomplish an accurate allocation of production costs, the company uses activity-based costing. The cost accountant for the company provided information about the activities used to produce the company’s products. The activities were organized into the following overhead cost categories. The most appropriate cost driver for each category is also provided.
Category Unit-level Batch-level Product-level Facility-level
B
Estimated Cost P 60,000 P 22,000 P 45,000 P 100,000
Cost Driver Labor hours Set-ups Storage space Machine hours
Carburetors 900 20 2,000 sq.m. 7,500
Air Filters 700 30 4,000 sq.m. 12,500
If carburetors and air filters require the same amount of direct labor, what will be effect if labor hours are used as the allocation base for product-level costs?
a. Air filters will be over costed b. Carburetors will be over costed
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Page 9 of 12 c. Air filters and carburetors will be over costed d. Air filters and carburetors will be under costed
C
53. A staff authority (rather than line authority) prevails between a. VP for Finance and treasurer b. Controller and accounting clerk c. VP for Production and controller d. Controller and assistant controller 54. The normal operating cycle is 150 days while payable turnover is 6 times. How many cash conversion cycles are there within a 300-day year?
A
a. b. c. d.
3 4 5 6
cycles cycles cycles cycles
Items 55 and 56 are based on the following information Domo Company has 15,000 hours of idle capacity. They need 20,000 units of a component part used in its product lines. It is estimated that each unit will take one-half machine hour for production. The following information is available: Cost to make the parts: Materials P 14 Direct labor 18 Factory overhead (75% of direct labor) Variable factory overhead (40% of factory overhead) Cost of buy the parts per unit from the supplier P 45
If Domo Company buys that parts rather than producing them, it will save 60% of fixed overhead cost per unit. 55. How much is the total relevant unit cost to make? C a. P 37.40 b. P 40.10 c. P 42.26 d. P 45.50 C
56. What is the over-all effect on company profit if Domo decides to buy from the supplier? a. P 152,000 worse off b. P 98,000 worse off c. P 54,800 worse off d. P 10,000 better off 57. Westminster makes two products, X and Y. Their contribution margins are P 50 and P 90,
respectively. Each product goes through three processes: cutting, finishing, and painting. The number of hours required by each process for each product and capacities available are given below:
Product X Y Capacities in hours
C
Which model a. b. c. d.
of for Z = X,Y 300 250
Hours Required in Each Process Cutting Painting Finishing 2 4 3 1 6 2 300
500
250
the following shall not be used in a Linear Programming Westminster? 50 X + 90 Y ≥ 0 ≤ 2 X + 1 Y ≥ 3 X + 2 Y
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Page 10 of 12 58. Dubai Company has two decentralized divisions, PG-13 and R-18. Division PG-13 has always purchased certain units from Division R-18 at P 75 per unit. Because Division R-18 plans to raise the price to P 100 per unit, Division PG-13 desires to purchase these units from outside suppliers for P 75 per unit. Division R-18’s costs follow:
Division R-18’s variable cost per unit Division R-18’s annual fixed costs Division PG-13’s purchase
P 70 P 15,000 1,000 units
If Division PG-13 buys from an outside supplier, the facilities Division R-18 uses to manufacture these units will remain idle. A
Would a. b. c. d.
it be more profitable for Dubai Company to enforce the P 100 transfer price? Yes, net advantage of the company is P 5,000 Yes, net advantage of the company is P 30,000 No, net disadvantage of the company is P 25,000 No, net disadvantage of the company is P 30,000
59. Kaplan and Norton’s Balanced Scorecard model requires that management performance be D
measured based on the perspective of
a. b. c. d.
Suppliers Creditors Government Shareholders
60. Desert Company reports the following balance sheet data: Current liabilities Bonds payable, 16% Preferred stock, 14%, P 100 par value Common stock, P 25 par value, 16,800 shares Premium on common stock Retained earnings
P 280,000 120,000 200,000 420,000 240,000 180,000
Income before 40%-tax is P 160,000 while the common stockholders’ equity in the previous year was P 800,000. Assume a market price per common share of P 35, what is the return on common equity?
B
A
a. b. c. d.
8.10% 8.29% 11.43% 11.71%
61. Immaterial amount of unfavorable standard cost variance is normally a. Added to the Cost of Goods Sold account b. Deducted from the Cost of Goods Sold account c. Added to the Finished Goods Inventory account d. Deducted from the Finished Goods Inventory account 62. Burj Company has the following information: Break-even sales Variable cost ratio
P 528,000 60%
At a net profit ratio of 8%, what is Burj’s degree of operating leverage?
A
a. 5 times b. 4 times c. 3 times d. 2 times 63. Which of the following financial statement analysis tool generally is MOST USEFUL in analyzing companies of different sizes?
D
a. b. c. d.
Comparative statements Index or trend analysis Liquidity and turnover ratios Common-size financial statements
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64. Safari Corporation carries no debt in its capital structure. Its beta is 0.8. The risk-free rate is 9 percent and the expected return on the market is 15 percent. The company has an opportunity to invest in a project that earns 12%.
D
A
Using Capital Assets Pricing Model (CAPM), what is Safari’s cost of capital? a. 4.8% b. 9% c. 12% d. 13.8% 65. A project’s net present value, ignoring income tax considerations, is normally affected by the a. Proceeds from the sale of the asset to be replaced b. Amount of annual depreciation on the asset to be replaced c. Carrying amount of the assets to be replaced by the project d. Amount of annual depreciation on fixed assets used directly on the project 66. At the start of the year, Bicester Company initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for the current year:
Sales Scrap Rework Quality training Product warranty Product inspection Materials inspection
P 100,000 20,000 25,000 10,000 30,000 40,000 20,000
In a quality cost report prepared by Bicester Company, what total amount should be shown as nonconformance costs?
C
a. b. c. d.
P P P P
45,000 70,000 75,000 115,000
67. When a specified level of safety stock is carried for an item in inventory, the average inventory level D
for that item
a. b. c. d.
Is 50% of Decreases Increases Increases
the level of the safety stock by the amount of the safety stock by 50% of the amount of safety stock by the number of units of the safety stock
68. Dividend yield is 12% while price-earnings ratio is set 5 times. Determine the retention or plowback ratio.
B
a. b. c. d.
2.4% 40.0% 41.7% 60%
Items 69 and 70 are based on the following information The present value of P 1 discounted at 2%: Year Simple Factor Annuity Factor 1 0.980 0.980 2 0.961 1.942 3 0.942 2.884 4 0.923 3.808 5 0.905 4.713 6 0.888 5.601 7 0.871 6.472 8 0.853 7.325 MAS – NCR Frontliners 2017
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Page 12 of 12 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.729 0.714 0.700 0.686 0.673 0.660 0.647 0.631 0.622 0.610
8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 17.011 17.658 18.292 18.914 19.523
A capital project’s expected gross income and after-tax cash flows for the next 25 years are as follows: Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
C
C
Gross Revenue P 250,000 P 250,000 P 250,000 P 250,000 P 250,000 P 250,000 P 250,000 P 250,000 P 250,000 P 250,000 P 300,000 P 300,000 P 300,000 P 300,000 P 300,000 P 400,000 P 400,000 P 400,000 P 400,000 P 400,000 P 500,000 P 500,000 P 500,000 P 500,000 P 500,000
Cash Inflows P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 10,000 P 20,000 P 20,000 P 20,000 P 20,000 P 20,000 P 20,000 P 20,000 P 20,000 P 20,000 P 20,000
Investment (P 1,000,000) (P 200,000) -
69. The cash flow margin in year 21 is higher (lower) than the cash flow margin in year 20 by a. 1% b. 3% c. (1%) d. (3%) 70. Assuming a 2% cost of capital, what is the net present value of the project? a. P 265,570 b. (P 734,430) c. (P 934,030) d. (P 1,213,440)
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