# Common size ratios, 2/10 N/30, NPV, FV, WACC, capital struct

Question 1 (2 points)

Regarding the term 2/10 N/30, which one of the following is true?

a. the first part says: if payment is received within 10 days, only 98% of the balance needs to be paid

b. the second part says: a 30% discount is available if a minimum number (N) of items are purchased

c. the second part says: if no payment is made within 30 days, interest will be charged on the balance

d. the first part says: if a payment is received within 2 days, there is a 10% discount

Question 2 (2 points)

Which of the following is not a profitability ratio?

a. revenues minus expenses divided by net assets

b. operating revenue divided by revenue less expenses

c. total increase in net assets divided by total revenue

d. return on assets

Question 3 (2 points)

Which one of the following is true?

a. the longer patient accounts remains uncollected, the lower the overall collection rate

b. EOQ is the optimal amount of inventory (such as medical supplies) that should be kept on hand for patient treatment

c. working capital equals current assets minus total liabilities

d. lockboxes are usually post office boxes that are emptied by the firm, with the contents immediately taken to the bank for payment processing

Question 4 (2 points)

Which one of following is true about common size ratios?

a. measures the efficiency of the organization

b. explains whether or not the firm can pay its current loans

c. current ratio is a popular common size ratio

d. allows comparisons of values that appear on the balance sheet

Question 5 (2 points)

Project A costs $10,000 and returns $3,000 a year for 3 years. Project B costs $15,000 and returns $5,000 a year for 2 years. Which one of the following is correct?

a. Payback period for Project A is 3 years.

b. Both projects should be undertaken.

c. Neither project should be undertaken.

d. Payback period for Project B is 3 years.

Question 6 (2 points)

How much will $8,000 invested at 3% simple interest be worth in three years?

a. $8,720

b. $8,860

c. $8,760

d. $8,680

Question 7 (2 points)

How much will $8,000 invested at 3% be worth in three years if it is compounded annually?

a. $8,460.24

b. $8,875.93

c. $8,741.82

d. $8,593.45

Question 8 (2 points)

Assume that for-profit company has $5 million of long-term debt with an interest rate of 7%. It has $2 million of preferred stock with a required dividend rate of 11%. And it has $3 million of common stock that is estimated to have a cost of capital of 15%. What is its weighted average cost of capital?

a. 9.9%

b. 10.4%

c. 10.2%

d. 11.0%

Question 9 (2 points)

Which one of the following is false?

a. activity ratios measure organizational efficiency

b. quick ratio is a solvency ratio

c. margin ratios are a subset of profitability ratios

d. debt service coverage explains whether or not the firm has enough cash to make its loan payments

Question 10 (2 points)

The capital structure of the organization represents

a. current liabilities

b. owner's equity

c. long term liabilities

d. liabilities and owner's equity

#### Solution Preview

Question 1 (2 points)

Regarding the term 2/10 N/30, which one of the following is true?

a. the first part says: if payment is received within 10 days, only 98% of the balance needs to be paid

b. the second part says: a 30% discount is available if a minimum number (N) of items are purchased

c. the second part says: if no payment is made within 30 days, interest will be charged on the balance

d. the first part says: if a payment is received within 2 days, there is a 10% discount

Answer: A

Question 2 (2 points)

Which of the following is not a profitability ratio?

a. revenues minus expenses divided by net assets

b. operating revenue divided by revenue less expenses

c. total increase in net assets divided by total revenue

d. return on assets

Answer: C

Question 3 (2 points)

Which one of the following is true?

a. the ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer which one of the following is true.