A Banker Is Analyzing a Company Which Operates in the Automotive

question 10

Multiple Choice

A banker is analyzing a company which operates in the automotive industry. Which of the following will likely be the banker's most important consideration in determining whether the company should receive a loan?

• A)The automotive industry suffers from political pressures concerning environmental regulation of products.
• B)Inflation has been consistently high for several years.
• C)The company has state-of-the-art automated equipment which enhances the efficiency of its operating process.
• D)The company has a large amount of interest payments related to other outstanding loans.

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Definitions:

Note Disclosure

Informative notes accompanying financial statements, explaining the basis of preparation and detailing specific accounting policies.

Capital Lease

A long-term lease agreement that is classified as a purchase by the lessee for accounting purposes because it effectively transfers substantially all the risks and rewards of ownership.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Lease Payments

Periodic payments made by a lessee to a lessor for the use of an asset under a lease agreement.