A Firm Has a Current Ratio Greater Than 1 $\begin{array}{lc}\underline{\text { Accounts receivable turnover} } \quad \underline{\text { Current ratio} }\end{array}$

question 24

Multiple Choice

A firm has a current ratio greater than 1.0. During the course of the year the firm sells $60 million of accounts receivable with limited recourse. If it had not sold the receivables it would have taken out a short-term loan. The effect of selling the receivables is:
$\begin{array}{lc}\underline{\text { Accounts receivable turnover} } \quad \underline{\text { Current ratio} }\end{array}$
A. $\begin{array}{lc}\quad\quad\quad\quad\text { higher } &\quad\quad\quad\quad\quad\quad \text { lower } \\\end{array}$
B. $\begin{array}{lc}\quad\quad\quad\quad\text { higher } & \quad\quad\quad\quad\quad\quad\text { higher } \\\end{array}$
C. $\begin{array}{lc}\quad\quad\quad\quad\text { lower } &\quad\quad\quad\quad\quad\quad \text { lower } \\\end{array}$
D. $\begin{array}{lc}\quad\quad\quad\quad\text { lower } &\quad\quad\quad\quad\quad\quad \text { higher }\end{array}$

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Surplus

Occurs when the quantity supplied of a product exceeds the quantity demanded at a given price, often leading to price reductions.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, usually intended to protect consumers from high prices.

Market Equilibrium

A state in a market where the quantity of a good demanded by consumers equals the quantity supplied by producers, leading to a stable price.

Binding Constraint

A restriction or limitation that significantly impacts decision-making or the feasibility of certain actions within an economic model or real-world scenario.