Which of These Is an Early Warning Sign Indicating Problems

question 62

Multiple Choice

Which of these is an early warning sign indicating problems with cash flows?

• A)Cash from operating activities is higher than profit
• B)Dividends paid are greater than cash flow from operations
• C)A large amount has been spent on the acquisition of fixed assets
• D)Proceeds from financing activities are used to finance investment activities

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Definitions:

Risk Level

The degree of uncertainty associated with an investment's returns, reflecting the potential for loss or lower than expected performance.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in capital budgeting.

Risk-Free Rate

A benchmark interest rate at which an investment is expected to yield a return without any risk of financial loss, usually associated with government securities.

Market Risk Premium

The extra return that investors require for choosing to invest in the general market rather than risk-free investments.