(CMA Adapted, Dec 87 #1) When a Balance Sheet Amount

question 83

Multiple Choice

(CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in computing a ratio,

• A)the balance sheet amount should be converted to an average for the year.
• B)the income statement amount should be converted to an average for the year.
• C)both amounts should be converted to market value.
• D)the ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amount.
• E)none of the above.

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Definitions:

Net Present Value

A method of valuing a series of future cash flows by discounting them back to their present value using a specified rate of return.

Working Capital

Working Capital is the difference between a company's current assets and current liabilities, indicating short-term financial health.

Discount Rate

This refers to the rate used in discounted cash flow assessments to figure out the current value of cash flows expected in the future.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of investments.