Which of the Following Statements Is CORRECT

question 40

Multiple Choice

Which of the following statements is CORRECT?

• A) Net working capital is defined as current assets minus the sum of payables and accruals, and any increase in the current ratio automatically indicates that net working capital has increased.
• B) Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing.
• C) If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.
• D) Net working capital is defined as current assets minus the sum of payables and accruals, and any decrease in the current ratio automatically indicates that net working capital has decreased.
• E) If a company follows a policy of "matching maturities," this means that it matches its use of short-term debt with its use of long-term debt.

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Definitions:

Market Entry

The process by which a new competitor enters an existing market, often involving overcoming barriers to entry.

AVC

Average Variable Cost, which is the total variable costs of production divided by the quantity of output produced.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from revenue; also known as supernormal profits.