Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 2, Problem 7P
To determine
Which of the given statement is true.
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Which of the following statements is most correct?(a) Working capital measures the company's ability to repay current liabilities using only current assets.(b) The days sales outstanding (DSO) represents the average length of time that the firm must wait after making a sale before receiving cash.(c) The lower debt ratio, the more the protection afforded creditors in the event of liquidation.( d) All of the above.
Which of the following statements is incorrect?(a) Holding on to cash is the most risk-free investment option.(b) To maximize your return on total assets (ignoring financial risk), you mustput all your money into the same type of investment category.(c) Diversification among well-chosen investments can reduce market volatility.(d) Broader diversification among well-chosen assets always leads to a higherreturn without increasing additional risk.
As an accountant, your job is to maintain your clients' accounting ledgers.
Total Revenues ($)
Total Costs ($)
Wages and Salaries
Risk-free return of 5% on owner's capital of $950,000
Interest on bank loan
850,000
650,000
47,500
30,000
150,000
10,000
Cost of supplies
Depreciation of capital equipment
Additional wages the dentist owner could have earned in her
next best alternative
Risk premium of
on the owner's capital of $950,000
One client has submitted the above information to you, but the last line of the table is missing. You
know that the firm is currently earning economic profits equal to -$66,000.
Your answers should include only numbers. Do not include the $ or the comma (,) in your answer.
In total, the firm's explicit costs are equal to $
The missing number that should go in the right column of the last row of the table (below the zero)
is $
The firm is currently earning accounting profit equal to $|
. Include the negative
sign if applicable.
Chapter 2 Solutions
Contemporary Engineering Economics (6th Edition)
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