Your Boss Decides That Your fiRm Will Switch from a Restrictive

question 243

Multiple Choice

Your boss decides that your firm will switch from a restrictive short-term financial policy to a more flexible policy. You should expect to see the firm's current ratio:

• A) Rise, due to the higher investment in current assets and the reduced use of short-term financing.
• B) Fall, due to the lower investment in current assets and the increased reliance on short- term financing.
• C) Rise, due to the lower investment in current assets and the greater use of short-term financing.
• D) Fall, due to the higher investment in current assets and the reduced use of short-term financing.
• E) To either rise or fall, but the use of short-term debt will increase.

---

Definitions:

Investment Account

A financial account held at a bank or brokerage used to buy, sell, and hold securities like stocks, bonds, and mutual funds.

Consolidated Dividends

Dividends paid by a parent company that include those received from and paid out to its subsidiaries.

Amortization

The gradual reduction of the book value of an intangible asset or loan balance over time through regular payments.

Net Income

The net income of a company following the deduction of all expenses and taxes from its total revenues.