Question

A firm with a capital intensity ratio of .98 has $.98 in (blank) and why? Multiple Choice

A) total assets for every $1 in sales.
B) sales for every $1 in total assets.
C) equity for every $1 in total debt.
D) total debt for every $1 in equity.
E) long-term assets for every $1 in short-term assets.

Answer 1

A firm with a capital intensity ratio of .98 has $.98 in total assets for every $1 in sales, indicating efficient asset usage or lower sales relative to assets.

Step-by-step explanation:

A firm with a capital intensity ratio of .98 has $.98 in total assets for every $1 in sales. The capital intensity ratio is a measure of how much capital is used in production compared to other factors such as labor. This ratio is determined by dividing the firm's total assets by its annual sales revenue. A ratio below 1, such as .98, indicates that the firm uses less than a dollar of assets for each dollar of sales, which can imply that the firm operates with higher efficiency in its use of assets or it has lower sales relative to the amount of assets it owns.