A Company That Produces Racing Motorbikes Has Several Models That

question 79

Multiple Choice

A company that produces racing motorbikes has several models that sell well within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations?

• A) New models will require a lot of money to develop and bring to market before they generate any revenue.
• B) Profits from the sales of popular models will be lost when returned to the shareholders in the form of dividends.
• C) The company will have built up debts which must be repaid in order to bring the current models to market.
• D) Equity must be raised to finance the development of new models to replace the existing models.

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Definitions:

Dividends Per Share

The amount of dividends that a company pays out to its shareholders for each share held, typically expressed on an annual basis.

Growth In Dividends

An increase in the amount of dividends paid out to shareholders over time, indicating a company's growing profitability and stability.

Market Index

A theoretical portfolio of investments representing a segment of the financial market, used as a benchmark to measure the performance of investments.

P/E Ratio

The Price to Earnings ratio, a valuation metric for stocks calculated by dividing the market price per share by its earnings per share.