Which of the Following Statements Is Correct

question 33

Multiple Choice

Which of the following statements is correct?

• A) In the text,depreciation is regarded as a use of cash because it reduces fixed assets,which then must be replaced.
• B) If a company uses some of its cash to pay off short-term debt,then its current ratio will always decline,given the way the ratio is calculated,other things held constant.
• C) During a recession,it is reasonable to think that most companies' inventory turnover ratios will change while their fixed asset turnover ratios will remain fairly constant.
• D) During a recession,we can be confident that most companies' DSOs (or ACPs)will decline because their sales will probably decline.
• E) Each of the above statements is false.

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Definitions:

Capacity

The maximum output or producing ability of a facility, machine, business, or system under normal working conditions.

Collateral

An asset that a borrower offers to a lender as security for a loan. If the borrower fails to repay, the lender may seize the collateral to recoup losses.

Choice

The act of selecting between two or more possibilities or the freedom to pick an option among several.

Capacity

The maximum amount that something can contain or produce; in a business context, it often refers to the maximum output or production ability.