Which of the Following Statements Is Correct

question 88

Multiple Choice

Which of the following statements is correct?

• A)Repayment of a bond on the first day of the fiscal year will have no effect on the shareholders' return on equity.
• B)Conversion of a 10% bond with no short term maturity, into common shares on the first day of the year will worsen the current ratio.
• C)The sale of 2,000 common shares for cash will have no effect on the current ratio.
• D)The sale of $5,000 of inventory on credit for $6,000 will have no effect on the current ratio.

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and earnings without increasing its financial leverage or equity financing.

Return On Equity

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively management is using a company’s assets to create profits.

Payout Ratio

A financial metric that shows the proportion of earnings a company pays to its shareholders in the form of dividends.

Internal Growth Rate

The highest amount of growth achievable for a business without obtaining external financing, based solely on reinvestment of its earnings.