Stacey Has a Debt Service Coverage Ratio of 1

question 100

Multiple Choice

Stacey has a debt service coverage ratio of 1.15.This tells us that

• A)Stacey's debt service charges are 1.15% of her take-home pay.
• B)Stacey has virtually no debt to service.
• C)Stacey has poor debt-carrying capacity and much of her future income will be required to service past debt.
• D)Stacey's debt reserves are only 1.15 times greater than her actual debts.

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Definitions:

Cash Flow Forecasts

Estimates of the amount of money expected to flow in and out of a business over a specific period, used for budgeting and financial planning purposes.

NPV

Net Present Value is the difference between the current value of cash inflows and the current value of cash outflows over a period of time, used in capital budgeting to assess the profitability of an investment.

Simulation Analysis

A combination of scenario and sensitivity analyses.

Capital Budgeting

The process by which investors and managers decide which long-term projects or investments a business should undertake, based on potential profitability.