TRUE OR FALSE?

SET A.

1. Consider that the risk-free interest rate is 3%, the market rate is 9% and ABC Co.'s beta is 2, the estimated cost of capital using the CAPM approach is 15%. 2. Monopolistic competition is characterized by a large number of company's producing a differentiated product. 3. Free cash flow is the excess cash flow of the firm after deducting capital expenditures required to operate and grow the business at the expected rate. 4. The difference between APR and EAR is that one considers compounding and the other ignores it.1. A consideration of risk may be incorporated into capital budgeting techniques in a number of ways. One way is through the use of scenario analysis. 2. A conclusion that the percent of change a person's grade on the CPA Exam will increase as the number of hours studied for the exam increases is a result of regression analysis. 3. In a period of recession, actual GDP exceeds potential GDP. 4. ABC Co. is considering the purchase of equipment for P40.000. This investment will generate annual cash inflows of P10,000 per year for the next 6 years. The company desires a rate of return of 12%. At that rate, the present value of P1 in six years is .507. At that rate, the present value of an ordinary annuity of P1 over six years is 4.111. The investment has a positive net present value of P1.1101. In January. ABC Co. spends P14,000 to manufacture 8.000 units of a product. The following month the company produces 5,000 more units at a cost of P9.500, Using the high-low method, the fixed cost for manufacturing this item is P2,000. 2. The balanced scorecard is best characterized as a financial report card for ABC Co. 3. A demand curve shift occurs when the price of the product changes. 4. The strategic objectives component of the balanced scorecard is a statement of what the strategy must achieve and what is critical to its success.1. A zero-balance account is designed to reduce the float in cash receipts. 2. Cyclical unemployment can be reduced by training employees in new skills, 3. ABC Co. is considering establishing a concentration banking system that will speed up receipts from customers by 2 days. Assuming that the company's average daily collections are P50.000, maintenance and transfer fees are P6.000 per year and the company's short- term cost of funds is equal to 4%. the company should not establish the concentration banking system. 4 Demand-pull inflation occurs at high-levels of economic activity.1. ABC Co. is considering the purchase of equipment for P80.000. The company would like to make a return on its investment of 10%. On the 1stl year, the equipment will increase net income by P11,000. The residual income is P3.000. 2. A country will produce a product as long as it has a comparative advantage with respect to production of the product. 3. One of Porter's five forces for an industry is the bargaining ABC Co.er of input suppliers 4. Commercial paper pays a higher interest rate than Treasury bills