Lu Lu's Catering Has a Debt Ratio Equal to

question 200

Multiple Choice

Lu Lu's Catering has a debt ratio equal to .3 and its competitor,Able's Bakery,has a debt ratio equal to .7.Determine the statement below that is correct.

• A)Able's Bakery has a smaller percentage of its assets financed with liabilities as compared to Lu Lu's.
• B)Able's Bakery's financial leverage is less than Lu Lu's.
• C)Able's Bakery's financial leverage is greater than Lu Lu's.
• D)Lu Lu's has a higher risk from its financial leverage.
• E)Higher financial leverage involves lower risk.

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Definitions:

Machine-Hours

A unit of measure indicating the operational time of machines in manufacturing processes, key to determining overhead rates and productivity.

Direct Labor-Hours

The total hours of work directly involved in manufacturing goods or delivering services, often used as a basis for allocating overhead.

Casting

A process in manufacturing where a liquid material is poured into a mold which contains a hollow cavity of the desired shape and then allowed to solidify.

Assembly

The process of putting together various components or materials to create a finished product.