1) Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1

Subject:BusinessPrice:3.87 Bought7

Share With

1) Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?

A. Fixed assets are sold for cash.

B. Long­term debt is issued to pay off current liabilities.

C. Accounts receivable are collected.

D. Cash is used to pay off accounts payable.

E. A bank loan is obtained, and the proceeds are credited to the firm's checking account.

 

2. Other things held constant, which of the following will not affect the quick ratio? (Assume that current assets equal current liabilities.)

A. Fixed assets are sold for cash.

B. Cash is used to purchase inventories.

C. Cash is used to pay off accounts payable.

D. Accounts receivable are collected.

E. Long­term debt is issued to pay off a short­term bank loan.

 

3. Which of the following statements is most correct?

A. If a company's ROA is 7 percent, then its ROE must be greater than or equal to 7 percent.

B. The BEP and ROA will be the same for a company with no debt in its capital structure.

C. A company with a low debt ratio will have a high equity multiplier.

D. Both statements a and c are correct.

E. None of the statements above is correct.

 

4. Which of the following statements is most correct?

A. Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms.

B. Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability.

C. Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a "good" value. For example, in the case of the current ratio, a "good" value is neither high nor low.

D. Ratio analysis facilitates comparisons by standardizing numbers.

E. All of the statements above are correct.