In 20X2, C Co's Total Liabilities Were $10,742 Million and Shareholders

question 17

Multiple Choice

In 20X2, C Co's total liabilities were $10,742 million and shareholders' equity was $8,403 million. In 20X2, P Co's total liabilities were $16,259 million and their shareholders' equity was $6,401 million. Which of the following statements is false?

• A) C Co's debt to equity ratio was 1.28 and P Co's was 2.54.
• B) C Co has only about 56.1% of its assets financed by debt while P Co has about 71.8% of assets financed by debt.
• C) P Co is a much higher leveraged company providing greater financial risk for investors but potential higher return on owners' investment to its shareholders.
• D) C Co is more profitable than P Co.

---

Definitions:

Average Total Cost

The total cost divided by the quantity produced, reflecting the per unit cost of production.

Average Variable Cost

The variable cost per unit of output, which includes costs that vary with production, such as materials and labor.

Economic Profit

The net outcome of subtracting all expenses, both overt and hidden, from a corporation's aggregate earnings.

Short Run

A period during which at least one of a firm's inputs is fixed, limiting the firm's ability to adjust to changes in market demand or supply.