Which of the Following Statements Is Most Correct

question 99

Multiple Choice

Which of the following statements is most correct?

• A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.
• D) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.

---

Definitions:

Depreciation Expense

The portion of the cost of a fixed asset that is considered consumed during its period of use by a business.

Prepaid Expenses

Costs incurred before receiving goods or services that are expected to be provided later.

Accounts Receivable

Funds that are due to a company from its customers for goods or services that have been delivered or sold but not yet paid for.

Inventories

are the raw materials, work-in-progress products, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.