Your Firm Is a Supplier to a Major Chain of Discount

question 68

Multiple Choice

Your firm is a supplier to a major chain of discount stores. You have heard rumors that this chain of discount stores is in financial difficulty. Which financial ratios would indicate the discount store's ability or inability to pay its short-term debts?

• A) liquidity ratios
• B) leverage ratios
• C) activity ratios
• D) profitability ratios

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Definitions:

Effective Annual Rate

The interest rate on an investment or loan that considers the effects of compounding over a one-year period.

Interest

The cost of borrowing money, typically expressed as a percentage of the principal, to be paid over a specified period.

Annuity Due

A type of annuity in which payments are made at the beginning of each period, rather than at the end.

Present Value

The current worth of a future sum of money or stream of cash flows, given a particular rate of discount.