A Company Has Current Assets of $100,000, Total Assets of $250,000

question 64

Multiple Choice

A company has current assets of $100,000, total assets of $250,000, current liabilities of $20,000, and long-term liabilities of $50,000. How much of its existing cash can the company use to acquire equipment without allowing its current ratio to decline below 2.0 to 1?

• A)$ 40,000
• B)$150,000
• C)$180,000
• D)$ 60,000

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Definitions:

Proportional Allocation

A method of distributing costs, resources, or revenues among various accounts or projects based on a predetermined criterion, such as usage or benefit.

Residual Income

The amount of income that an individual or business has after all expenses and debts have been paid.

Return on Investment

A financial metric used to gauge the profitability of an investment, calculated by dividing the profit gained from an investment by the cost of the investment.

Operating Income

EBIT, which stands for Earnings Before Interest and Taxes, indicates a firm's profit derived specifically from its primary business activities.