Which ratio appears on a common-size balance sheet

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Reference no: EM13214835

1.Grandma's Applesauce, Inc. has a 0.60 probability of a good year with operating cash flow of $50,000; and 0.40 probability of a bad year with operating cash flow of $30,000. The company has a debt of $35,000 with 8 percent interest due next year. Assuming the company has no means of servicing its debt other than operations, and a 0% tax rate, which of the following is true?

Shareholders expected claim is $12,200
Creditors expected claim is $37,800
Creditors expected claim is $34,680
None of the above

2.The Pecking Order Theory of capital structure rests on an assumption of
Agency costs
Barriers to entry
Asymmetric information
Tax shields and cost of financial distress

3.Which of the following ratios appears on a common-size balance sheet?
I. Debt to asset ratio
II. Net working capital to total assets
III. Net profit margin
I , II, III
I only
I and III
III only

Reference no: EM13214835

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