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A decrease in warranty liabilities increases net sales. Why?

1. .A decrease in warranty liabilities increases net sales. Why?
a. True
b. False

2. .A company with anticipated earnings-per-share growth is worth more. Why?
a. True
b. False

3. .A reduction in the advertising expense ratio increases return on common equity and share value. Why?
a. True
b. False

4. .An underestimate expenses to increase profit margins can create net operating assets. Why?
a. True
b. False

5. .The higher a firm's contribution margin ratio, the more leverage it gets from increasing sales. Why?
a. True
b. False

Solution Preview

1. -A decrease in warranty liabilities increases net sales. Why?
a. False. Warranty liability is the anticipated amount which company is going to incur in future on the repair/return of the products sold. When the firm actually incurs an expense on the repair and maintenance this account is reduced. However, this does not change the net sales figures, which was calculated at the time of sale.

2. A company with anticipated earnings-per-share growth is worth more. Why?
b. False. Not always, true. For example, a company, which is paying 100% dividend and have a zero EPS growth can have a higher value ...

Solution Summary

The following post answers five conceptual questions on ratios, warranty and EPS with explanations.

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