Paper 3 COPY

Question 1

PED and YED

Answer 1

Ped - % change in QD / % change in price
YEd - % change in QD / % change in Income

Question 2

Investment appraisal

Answer 2

-Payback period, the time it takes for a project to return its initial investment. Initial investment / Cash flow per year
-Net present value, asses the value of the projects future cash flow.
-Average rate of return, Total net profit / Number of years. Then divide that by the initial cost x 100 for percentage

Question 3

Current ratio

Answer 3

-The ability to pay short term obligation or those due within a year
- Current assets / current liabilities
-1.5 - 2 suggests efficient working capital
-Below 1 suggests cash problems

Question 4

Acid test ratio

Answer 4

-Ability to pay short term obligations
-Current assets - inventory / current liabilities
-Below 1 suggest problems

Question 5

Gearing test ratio

Answer 5

-Shows the amount of debt compared to equity in company
-Long term liabilities / Capital employed x 100
-High gearing ratio near 50% suggests problems in financing

Question 6

Capacity utilisation

Answer 6

-Shows how much production a company can output in a given time
-Actual output / Maximum possible output x 100