The Following Information Was Included in a Note to the Current

question 151

Multiple Choice

The following information was included in a note to the current year financial statements of Romeo Productions: The company has a loan agreement with First National Bank that states:
1) The current ratio must be 2.0 or higher at all times.
2) The debt-to-equity ratio must not exceed 0.7 at any time.
3) The times interest earned ratio must be 5.0 or higher.
4) The inventory turnover ratio must be 4.0 or higher.
The company's ratios are: current ratio, 2.3; debt-to-equity ratio, 0.6; times interest earned ratio, 7.1; and inventory turnover ratio, 3.7. Based on this information, the company was in default of its loan agreement because of the

• A)current ratio.
• B)debt-to-equity ratio.
• C)times interest earned ratio.
• D)inventory turnover ratio.

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Definitions:

Optimal Two-part Tariffs

A pricing strategy that includes a fixed fee plus a variable charge based on usage, designed to maximize profit while catering to consumer usage patterns.

Entrance Fee

A charge for admission to a facility, event, or institution.

Profit Function

An equation or model that represents the total profit of a business, calculated as total revenue minus total costs.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.