Company a Has Current Assets of $42 Billion and Current

question 44

Multiple Choice

Company A has current assets of $42 billion and current liabilities of $31 billion.Company B has current assets of $2.7 billion and current liabilities of $1.8 billion.Which of the following statements is correct,based on this information?

• A)Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.
• B)Company A has greater leverage than Company B.
• C)Company A has less leverage than Company B.
• D)Company A and Company B have roughly equivalent enterprise values.
• E)Company A is more likely than Company B to have sufficient working capital to meet its short-term needs.

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Definitions:

Beta

A measure of the volatility of a stock or portfolio compared to the volatility of the overall market.

Dividend Growth Model

A method of valuing a company's stock price by using predicted dividends and discounting them back to present value.

Cost of Equity

The return that investors expect for investing in a company's equity, often calculated using models like the Capital Asset Pricing Model (CAPM).

Market Risk Premium

Slope of the Security Market Line; the difference between the expected return on a market portfolio and the risk-free rate.