A Company Has Assets of $10 Million and Liabilities of $7

question 119

Multiple Choice

A company has assets of $10 million and liabilities of $7 million. Liabilities include $4 million in accounts payable, $2 million in long-term notes payable and $1 million in other non-current liabilities. If a financial web site uses long-term debt rather than total liabilities to calculate the company's debt-to-assets ratio, the web site will report a ratio of:

• A) 0.5, which would correctly state financing risk.
• B) 0.4, which would suggest more financing risk than it actually has.
• C) 0.3, which would suggest less financing risk than it actually has.
• D) 0.3, which would suggest more financing risk than it actually has.

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