What Are the Two Major Problems with Relying on the Measure

question 17

Multiple Choice

What are the two major problems with relying on the measure Capital gearing = Long- term debt/Shareholders' funds?

• A) It ignores the fact that many firms have no access to overdrafts or similar borrowing.
• B) The book value of assets can be quite different from the sale value.
• C) A range of values from zero to infinity is possible and this makes inter- firm comparisons difficult.
• D) It exaggerates the effect of financial distress.

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Definitions:

Pitch Cone

The imaginary cone that defines the pitch surface of conical gears or screw threads, where the common vertex of the gear teeth or threads would converge.

Cone Angle

The angle formed between the outer surfaces of a cone, measured at its widest part.

Bevel Gears

Gears designed with angled teeth so they can transmit motion between intersecting shafts, typically at a right angle.

Intersecting Shafts

Shafts that cross each other at any angle other than 90 degrees, often requiring special joint or coupling to transmit power.