The Ratios That Measure the Degree of Risk Associated with Borrowing

question 44

Multiple Choice

The ratios that measure the degree of risk associated with borrowing money from outsiders to finance the business are the:

• A) liquidity ratios.
• B) investment ratios.
• C) efficiency ratios.
• D) gearing ratios.

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Definitions:

Net Present Value

A method used in capital budgeting to assess the profitability of an investment by calculating the difference between the present value of cash inflows and outflows.

MACRS

MACRS, or Modified Accelerated Cost Recovery System, is a method of depreciation in the United States that allows for faster asset expense recovery over time for tax purposes.

Cash Flows

The movement of money into and out of a business or project, considered crucial for gauging its financial health.

Incremental Changes

Small or minimal adjustments or changes that are made to improve a process, product, or system over time.