A High Debt-To-Equity Ratio Does NOT Indicate That the Company

question 44

Multiple Choice

A high debt-to-equity ratio does NOT indicate that the company:

• A) is highly geared.
• B) is heavily in debt relative to its equity.
• C) may be vulnerable to interest rate increases.
• D) has a high current ratio.

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, enabling comparison of the value of investments made at different times.

Net Present Value

A method used to evaluate investments by calculating the present value of expected future cash flows minus the initial investment cost.

Cash Inflows

Refers to the money received by a company during a particular period, including revenues from sales, investments, and financing activities.

Minimum Acceptable Rate

The lowest rate of return on an investment that a manager or investor is willing to accept.