A Company That Produces Racing Motorbikes Has Several Models That

question 31

Multiple Choice

A company that produces racing motorbikes has several models that sell well within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations?

• A)New models will require a lot of money to develop and bring to market before they generate any revenue.
• B)The company will have built up debts which must be repaid in order to bring the current models to market.
• C)Profits from the sales of popular models will be lost when returned to the shareholders in the form of dividends.
• D)Equity must be raised to finance the development of new models to replace the existing models.

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Definitions:

Financial Account

A component of a country’s balance of payments that records transactions of foreign investment and domestic investment abroad, reflecting changes in ownership of international assets.

Financial Account

A component of a country's balance of payments that records transactions involving financial assets and liabilities between residents and non-residents over a period.

Capital Account

A national account that shows the net change in asset ownership for a nation, including assets from financial and physical capital.

Current Account

This term refers to a country's transactions with the rest of the world, including trade in goods and services, earnings on investments, and transfer payments.