1. When examining ratios to determine if a new plan was a success, we would bene
ID: 2715908 • Letter: 1
Question
1. When examining ratios to determine if a new plan was a success, we would benefit most by:
A. comparing to industry averages.
B comparing to our closest competitor.
C time trend analysis.
D comparing the ratios to zero.
E it is impossible to determine success from ratios.
2. You have some property for sale and have received two offers. The first offer is for $189,000 today in cash. The second offer is the payment of $100,000 today and an additional $100,000 two years from today. If the applicable discount rate is 8.75%, which offer should you accept and why?
A. You should accept the $189,000 today because it has the higher net present value.
B. You should accept the $189,000 today because it has the lower future value.
C. You should accept the second offer because you will receive $200,000 total.
D. You should accept the second offer because you will receive an extra $11,000.
E. You should accept the second offer because it has a present value of $194,555.42.
3. Financial ratios can be compared to all of the following, except:
A. Actual accounting values
B. Previous time periods of the firm
C. Industry averages
D. Other ratios
E. Values before, then after an event.
Explanation / Answer
1. When examining ratios to determine if a new plan was a success, we would benefit most by:
A. comparing to industry averages.
B comparing to our closest competitor.
C time trend analysis.
D comparing the ratios to zero.
E it is impossible to determine success from ratios.
Answer:
a. Comparing to industry averages.
1. You have some property for sale and have received two offers. The first offer is for $189,000 today in cash. The second offer is the payment of $100,000 today and an additional $100,000 two years from today. If the applicable discount rate is 8.75%, which offer should you accept and why?
A. You should accept the $189,000 today because it has the higher net present value.
B. You should accept the $189,000 today because it has the lower future value.
C. You should accept the second offer because you will receive $200,000 total.
D. You should accept the second offer because you will receive an extra $11,000.
E. You should accept the second offer because it has a present value of $194,555.42.
Answer:
The present value of the second offer is= $100000 + $100000/(1+8.75%)2
Therefore PV = $100000 + $84555.423 = $184555.423
As this value is lower than the first offer, therefore we accept the first offer.
So the correct answer is A.
3. Financial ratios can be compared to all of the following, except:
A. Actual accounting values
B. Previous time periods of the firm
C. Industry averages
D. Other ratios
E. Values before, then after an event.
Answer:
Correct answer is A. Actual accounting values.
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