Which of the Following Statements Is Most Correct

question 24

Multiple Choice

Which of the following statements is most correct?

• A) If a company uses cash to buy inventory, its current ratio will decline.
• B) If a company uses some of its cash to pay off short-term debt, then its current ratio will always decline, given the way the ratio is calculated, other things held constant.
• C) During a recession, it is reasonable to think that most companies' inventory turnover ratios will change while their fixed asset turnover ratios will remain fairly constant.
• D) During a recession, we can be confident that most companies' DSOs (or ACPs) will decline because their sales will probably decline.
• E) Each of the statements above is false.

Identify solutions to mitigate the problems of adverse selection and moral hazard.

Recognize the role of information asymmetry in economic transactions.

Understand the use of deductibles, co-pays, and premiums in insurance to manage risk.

Appreciate the significance of signaling and screening in reducing information asymmetry.

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Definitions:

Absorption

The process by which substances are taken up or assimilated into the body or into cells.

Disease Transmission

The process by which infectious diseases spread from one individual to another, through direct contact, vectors, or environmental means.

Inhalation

The act of breathing in; the intake of air or other substances into the lungs.

Ingestion

The process of taking food, drink, or another substance into the body through the mouth.