6. The difference between sales price per unit and variable cost per unit is a.

Question

6. The difference between sales price per unit and variable cost per unit is a. net margin b. contribution margin c. sales margin d. operating leverage per unit 7. The Payback method of capital budgeting is popluar because it is easy to and a. assets; liabilities d. time-value-of-money; future cash flows 8. Interest earned on both the initial principal and the interest reinvested from pr periods is called a. simple b. coupon d. annual 9. The minimum discount rate for capital budgeting purposes is the firm's own a. effective annual rate b. cost of capital c lending rate d. dividend rate 10. The Accounting Equation used on the Balance Sheet is 11. The equation that governs the Income Statement is

Explanation / Answer

Solution: 6. Answer is b. contribution margin Working Notes: The difference between sales price per unit and variable cost per unit is the contribution margin. As Contribution margin is calculated by Contribution margin = Sales price per unit - Variable cost per unit 7. Answer is d. time-value of money , future cash flows Working Notes: The payback method of capital budgeting is popular because it is easy to calculate and understand it is not very effective, however, because it ignores time value of money and future cash flows Since, in payback period it doest not consider the time value of money of any cash inflows and also not considered the cash inflows the future cash flows beyond the payback period. 8. Answer is c. compound Working Notes: Interest earned on both the initial principal and the interest reinvested from prior periods is called compound interest Since, compound interest , is interest earned on initial principal amount and interest earned on them which are re-invested, in short interest on interest and interest on principal. 9. Answer is b. cost of capital Working Notes: The minimum discount rate for capital budgeting purposes is the firm's own cost of capital. Since, in capital budgeting decision , minimum return is required will first the its own cost of capital and if project is giving higher return after giving firm 's cost of capital , the project will be acceptable to the firm. 10. Answer is Assets = Liabilities + Owners' Equity Working Notes: The accounting equation used on the Balance Sheet is Assets = Liabilities + Owners' Equity 11. Answer is Revenues - Expenses = Net income Working Notes: The equation that governs the income statement is Revenues - Expenses = Net income Please feel free to ask if anything about above solution in comment section of the question.

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