A Company Has Assets of $10 Million and Liabilities of $7

question 86

Multiple Choice

A company has assets of $10 million and liabilities of $7 million.Liabilities include $4 million in accounts payable,$2 million in long-term notes payable and $1 million in other non-current liabilities.If a financial web site uses long-term debt rather than total liabilities to calculate the company's debt-to-assets ratio,the web site will report a ratio of:

• A)0.4,which would correctly state financing risk.
• B)0.4,which would suggest more financing risk than it actually has.
• C)0.3,which would suggest less financing risk than it actually has.
• D)0.3,which would suggest more financing risk than it actually has.

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Definitions:

Floating-Rate Bonds

Bonds with interest rates that adjust periodically based on a reference interest rate or index, protecting investors from interest rate risk.

Market Price

The price at which a product or service is traded in the competitive marketplace.

Put Provision

A clause found in certain securities that allows the holder to force the issuer to repurchase the security at specified prices before maturity.

Fixed Rate Bond

A bond that pays a predetermined interest rate to investors for the entire term of the bond.