Suppose a Company Unexpectedly Receives a Huge Order for Its

question 233

Multiple Choice

Suppose a company unexpectedly receives a huge order for its main product. To cope with this, the owner borrows money to rent an additional facility to fill the orders and to pay the temporary workers who will produce the large order. The owner does this hoping that the additional costs will be more than covered by the revenue from selling the additional units of the product. Which ratio will be most affected by these decisions?

• A) The short-term solvency ratio
• B) The long-term solvency ratio
• C) The profitability ratio
• D) The activity ratio
• E) The equity ratio

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Definitions:

High Capital Requirements

The need for significant financial investment to start or maintain operations in certain industries or business activities.

Limited Distribution Channels

A situation where a product or service has a small number of outlets or platforms through which it can reach customers.

Industry Analysis

An examination of the economic and market forces that affect the competitiveness within an industry.

High Exit Barriers

Factors that make it difficult and costly for a company to leave a market or industry.