Which of the Following Indicates a Firm Will Be Able

question 105

Multiple Choice

Which of the following indicates a firm will be able to pay its bills in a satisfactory manner?

• A) A debt to equity ratio of 1:1 or higher
• B) An activity ratio of 5:1 or less
• C) A net income to common shares outstanding ratio of 1:1 or less
• D) A current ratio of 2:1 or higher
• E) A profitability ratio of 5:1 or higher

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Definitions:

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

Pre-Merger Market

The financial and economic conditions affecting companies and their stock prices before they undergo a merger.

External Growth

Expansion of a business through acquiring or merging with other companies, as opposed to internal growth through increasing sales, product lines, or efficiencies.

Diversification

In finance, selecting a portfolio of different (diverse) investments to limit the overall risk borne by the investor.