Consider the Following Linear Equation Model Regarding an Accountant's Judgements

question 1

Multiple Choice

Consider the following linear equation model regarding an accountant's judgements regarding the likelihood of business failure:
Likelihood of Insolvency/Solvency= constant + 0.1 Net profit + 0.3 Cash flow + 0.15 Acid test ratio + 0.25 Debt to Equity ratio + other information cues + error
According to the model which of the following statements is correct?

• A)The accountant considers the debt to equity ratio to be a relatively more important information cue regarding insolvency than the cash flow
• B)The Acid test ratio has a higher beta weight than net profit
• C)The accountant will only consider net profit,cash flow,acid test ratios and debt to equity ratios when making judgements on business solvency
• D)The acid test ratio is the least important information cue for the accountant in making his solvency judgement

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Definitions:

Indifference Curve

a graph showing different combinations of two goods that give a consumer equal satisfaction and utility.

Budget Constraint

The limitations on the consumption choices of an individual or household due to limited financial resources.

MUx/MUy

Represents the marginal utility of good x divided by the marginal utility of good y, often used in consumer choice theory to analyze optimal consumption points.

Indifference Curve Analysis

A graphical representation of consumer preferences showing combinations of goods or services among which they are indifferent, demonstrating varying levels of utility.