Which of the Following Statements Is CORRECT

question 38

Multiple Choice

Which of the following statements is CORRECT?

• A) "Window dressing" is any action that improves a firm's fundamental, long-run position and thus increases its intrinsic value.
• B) Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of "window dressing." Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of "window dressing."
• C) Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of "window dressing."
• D) Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of "window dressing."
• E) Using some of the firm's cash to reduce long-term debt is an example of "window dressing."

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Definitions:

Par

The face value of a bond or security, often used in the context of bonds trading at, above, or below their issued price.

Market Rate

The prevailing interest rate available in the marketplace for similar financial instruments or loans.

Financial Instrument

A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Maturity Value

The amount that will be payable to the holder of a financial instrument at its maturity date, including principal and interest.