Following Are Selected Data from Westmoreland Company's Financial Statements ​
-Refer to the Westmoreland Company Data

question 167

Multiple Choice

Following are selected data from Westmoreland Company's financial statements. $$\begin{array} { l r r } & \underline { \mathbf { 2 0 1 7 } } & \underline { \mathbf { 2 0 1 6 } } \\\text { Current liabilities } & \$ 230,000 & \$ 160,000 \\\text { Long-term debt } & 120,000 & 320,000 \\\text { Stockholders' equity } & 420,000 & 540,000 \\\text { Cash payments for additions to plant and equipment } & 45,000 & 32,000 \\\text { Net cash flow from operating activities } & 80,000 & 51,000 \\\text { Interest and principal payments } & 12,000 & 8,000 \\\text { Net operating cash flows before interest and taxes } & 68,000 & 43,000 \\\text { Net income } & 90,000 & 72,000 \\\text { Interest expense } & 8,500 & 11,500 \\\text { Income taxes } & 16,000 & 14,500 \\\text { Dividends paid } & 15,000 & 30,000\\\end{array}$$ ​
-Refer to the Westmoreland Company data. ?
The company's debt-to-equity ratio was 0.83 to 1 in 2017 and 0.89 to 1 in 2016.Which of the following statements is true concerning Westmoreland?

• A) The company has a smaller percentage of capital from owners at the end of 2017 than at the end of 2016.
• B) The company relied more on creditors for financing during 2017 than in 2016.
• C) The company is improving its debt-to-equity ratio.
• D) The company appears to be in a weaker position at the end of 2017 to finance capital expenditures from cash flow generated by operating activities.

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Definitions:

Optimal Capital Structure

The most favorable mix of debt and equity financing that minimizes a company's overall cost of capital while maximizing its stock price.

Common Share Price

The market value of a single share of a company's common stock.

Debt

An amount of money borrowed by one party from another, under the condition that it is to be paid back at a later date, usually with interest.

Equity

The value of an ownership interest in property, including shareholders' ownership in a corporation.