Question

When we talk about a product with "low income elasticity" what are we saying? Select one: a. Its sales volumes are not as affected by changes in disposable income as other products. b. When people have to make budget cuts, they would switch to buying this product instead. 0 C. It is targeted at lower-income customers. d. It has a reduced effect on how far people can stretch their budgets. Which of the following statements is the most correct? Select one: O a. The value of assets in liquidation is generally higher than when running as a going concern. b. The value of assets in liquidation is generally lower than when running as a going concern. c. The value of assets will be the same, whether in liquidation or running as a going concern

Answer 1

1: a

Income elasticity is the degree by which quantity varies in response to changes in income. Hence low income elasticity means that the sales volume is not much affected by change in income.Other options are irrelevant to the concept of income elasticity.

2: b

Assets are sold in a hurry and generally sold at lower prices during liquidation. They are not sold at higher or same prices.

3: a,d

Equity is not repayable at a fixed maturity date.

B is false since equity debt ratio can be manipulated. C is false since owners funds is not guaranteed to be repaid. D is true since cost of capital depends upon the changes in cost of raising debt and equity.

4: c

Creditors have priority claim on the assets of the firm. Other options are irrelevant.

5: False

The dividend policy is at the discretion of management.