Question 4 The capital intensity ratio is generally defined as follows: Answer S

Question

Question 4

The capital intensity ratio is generally defined as follows:
Answer Sales divided by total assets, i.e., the total assets turnover ratio.
The percentage of liabilities that increase spontaneously as a percentage of sales.
The ratio of sales to current assets.
The ratio of current assets to sales.
The amount of assets required per dollar of sales, or A0*/S0.
.2 points
Question 5

Which of the following statements is CORRECT?
Answer When we use the AFN equation, we assume that the ratios of assets and liabilities to sales (A0*/S0 and L0*/S0) vary from year to year in a stable, predictable manner.
When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.
Firms whose fixed assets are

Explanation / Answer

The correct answer to the first question is The amount of assets required per dollar of sales, or A0*/S0.

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