Question

true or false

6. profit margin = net income/ sales

7. debt ratio = long term debt / ( long term debt + equity )

8. equity investors are satisfied with the performance of a company when the cost of equity is higher than the return on equity, because this shows good risk management

9. in a financial lease, when comparing the PV of leasing and the PV of buying, we ignore maintenance and insurance cost because both the lessee and the buyer of the asset have to pay for them, which makes their inclusion in pv calculations reductant

10. company Y has three investment projects (A, B and C) and can only spend 40 million Euros. Project A has an investment of 20 million euros, and is expected to produce a net present value (NPV) of 28 euros: project Bhas an initial investment of 20 million euros, and is expected to produce NPV of 29 euros; projec C has an initial invstment of 40 million euros, and i expected toproduce a NPV of 54 euros. according to the profitability index, company Y should accept project C, because it has the gratest present value. is the last statement true or false

Answer 1

Profit margin = net income/sales TRUE

7. Debt ratio = long term debt/(debt+equity) TRUE

8. FALSE

Equity investors will be satisfied when return on equity is higher than cost of equity

9.TRUE

financial lease is for long term and lessee has has to pay insurance costs and all just like buyer of asset, hence excluded

10. FALSE

profitability Index = present value of cash inflows/initial investment

Higher the PI, Better it is.

Project B has highest PI I.e. 29/20