To determine:
Net worth, income available for savings, current ratio, savings ratio, months living expense covered ratio, debt ratio, long term debt covering ratio, interpretation and advice of the ratios.
Introduction:
Net worth is that part of the assets that exceed liabilities. It is calculated by subtracting borrowing or debt from total assets.
Current ratio shows whether the business has enough funds to meet current liabilities or not. It is calculated by dividing monetary asset from current liabilities.
Saving ratio shows the how much they are saving with the amount of money that they have for their living expenditure. It is calculated by dividing income available for savings and investment from income available for living expenditure.
Monthly living expense covered ratio shows whether a person have enough liquidity to meet emergencies or not. It is calculated by dividing monetary assets by monthly living expenditure.
Debt ratio shows the ability of the household whether they can pay their debt or liability or not. It is calculated by dividing total debt or total liability from total assets.
Long-term debt coverage ratio shows the ability of the person to pay its long term debt. It is calculated by dividing total income available for living expenses and total long term debt payments.
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Chapter 2 Solutions
Personal Finance: Turning Money into Wealth (7th Edition) (Prentice Hall Series in Finance)
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- To invest in a project, a company needs $50 million. Given its flotation costs of 7%, how much does the company need to raise? Multiple choice question. $53.76 million $46.50 million $50.00 million $53.50 millionarrow_forwardWhile determining the appropriate discount rate, if a firm uses a weighted average cost of capital that is unique to a particular project, it is using the Blank______. Multiple choice question. economic value added method pure play approach subjective approach security market line approacharrow_forwardWhat are flotation costs? Multiple choice question. They are the costs incurred to issue new securities in the market. They are the costs incurred to insure the payment due to bondholders. They are the costs incurred to meet day to day expenses. They are the costs incurred to keep a project in the business.arrow_forward
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