A Small Company Has Current Assets of $112,000 and Current

question 77

Multiple Choice

A small company has current assets of $112,000 and current liabilities of $117,000.Which of the following statements about that company is most likely to be TRUE?

• A)Since net working capital is negative,the company will not have enough funds to meet its obligations.
• B)Since net working capital is high,the company will likely have little difficulty meeting its obligations.
• C)Since net working capital is very high,the company will have ample money to invest after it meets its obligations.
• D)Since net working capital is nearly zero,the company is well run and will have little difficulty attracting investors.
• E)Since net working capital is negative,the company will likely have little difficulty meeting its obligations.

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Definitions:

Equity Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell a stock at a specified price before a certain date.

CCA Tax Shield

A deduction that allows businesses to depreciate the cost of an asset over time for tax purposes, reducing their taxable income.

Lessee

A lessee is a person or entity who rents land or property from a lessor under the terms of a lease.

Lessor

An entity or individual that rents out an asset or property to another party, known as the lessee.