Lance Is Trying to Decide Whether to Purchase a New

question 105

Multiple Choice

Lance is trying to decide whether to purchase a new bulldozer to expand his business.He is confident he has enough work to keep the bulldozer busy and that repaying the loan will not be a problem.What advice would you give Lance?

• A)If the interest rate on the loan is less than the return on assets for the dozer,buy.
• B)If the return on this asset is more than the return on his equity,don't buy.
• C)If his current return on equity is greater than the return on this asset,buy.
• D)If his total asset turnover rate is greater than one,don't buy.

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Definitions:

Direct Method

An accounting method used in cash flow statements that lists major cash inflows and outflows directly, without adjustments.

Cash Inflow

refers to the movement of money into a business, often from operations, financing, or investing activities, contributing to the company's cash balance.

Cash Outflow

The movement of money out of a business, project, or investment, usually in the form of expenses, purchases, or cash distributions.

Cash Flow Ratio

A metric that assesses the liquidity of a company by comparing its operating cash flow to its current liabilities.