A Note of Caution in Interpreting the Debt Ratio Is

question 17

Multiple Choice

A note of caution in interpreting the debt ratio is that

• A)all debt decreases liquidity ratios.
• B)financing arrangements, such as leases, may be off-balance sheet arrangement and not be classified as debt on the balance sheet.
• C)financing arrangements, such as leases, may be classified as debt when in fact they do not require interest payments.
• D)long-term debt may be inflated because of a desire to reduce the current ratio.

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Definitions:

Marginal Cost Curve

A curve that graphically represents the cost of producing one additional unit of a good, typically illustrating how marginal cost varies with the quantity produced.

Competitive Firm

A company operating in a market where it has to set its prices based on the market conditions because it has little to no influence over the market prices.

Output Rises

An increase in the amount of goods or services produced by a company or economy.

Negative Economic Profit

A situation where total costs exceed total revenues, indicating a loss in economic terms.