Your fiRm's Banker Is Getting Nervous About Your Liquidity

question 163

Multiple Choice

Your firm's banker is getting nervous about your liquidity. Which of the following actions would increase the firm's current ratio (which is presently 0.6) and ease the bank's concern?

• A) Sell 30-year bonds to purchase fixed assets.
• B) Allow preferred shareholders to convert their holdings into common stock.
• C) A cash sale of inventory at cost.
• D) Sell long-term bonds owned by the firm and purchase marketable securities.
• E) File for bankruptcy.

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Definitions:

Average Total Cost

The total cost of production (fixed and variable costs) divided by the number of units produced, indicating the cost per unit of output.

Specialization

A strategy where individuals or entities concentrate on a narrow range of production tasks, aimed at increasing efficiency and expertise.

Quantity Discounts

Price reductions based on the amount of a product purchased, incentivizing buyers to purchase in larger volumes.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one more unit changes as production volume changes.