Technical Insolvency Occurs When

question 45

Multiple Choice

Technical insolvency occurs when

• A)the firm is unable to meet its current obligations as they come due, even though the value of its assets exceeds its liabilities
• B)the recorded value of the firm's assets is less than the recorded value of its liabilities
• C)the firm files a bankruptcy petition in accordance with the Federal bankruptcy laws
• D)the owners of the businesses lack experience

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Definitions:

Present Value

The immediate value of an upcoming lump sum or series of financial inflows, quantified by a specific rate of return.

Compound Interest

The addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest, making the sum grow at a faster rate than simple interest.

Earnings Rate

The rate at which a company or investment is generating income, typically expressed as a percentage of the investment or capital employed.

Inflation

A period when prices in general are rising and the purchasing power of money is declining.