Which of the Following Ratios Is Considered to Be a More

question 13

Multiple Choice

Which of the following ratios is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio?

• A)Collection period
• B)Current ratio
• C)Liquidity ratio
• D)Quick ratio

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Definitions:

Cost of Capital

Cost of capital refers to the minimum rate of return that a company must earn on its investments to maintain its market value and satisfy its stakeholders.

Future Cash Flows

Estimates of the amount of money to be received or paid out in the future by an entity.

Negative NPVs

Instances where the Net Present Value (NPV) of a project or investment is below zero, indicating that the expected cash flows are not sufficient to cover the initial investment.

Shareholder Wealth

The overall value of an investment in a company held by its shareholders, often measured by stock price appreciation and dividends.