Company a
A Company Reported the Following Amounts in Its

question 83

Multiple Choice

Company A
A company reported the following amounts in its financial statements:
$\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Average inventory } & \$ 100,000 & \$ 60,000 \\\text { Cost of goods sold } & 2,000,000 & 1,500,000\end{array}$
-Refer to the figure Company A.Which of the following best describes Company A's efficiency in managing inventory from Year 1 to Year 2?

• A) It was declining; the inventory turnover ratio was decreasing.
• B) It was improving; the inventory turnover ratio was increasing.
• C) It was declining; the inventory turnover ratio was increasing.
• D) It was improving; the inventory turnover ratio was decreasing.

---

Definitions:

Cost of Equity

The return a company theoretically pays to its equity investors to compensate them for the risk they undertake by investing in the company's stock.

Required Rate of Return

The minimum annual percentage earned by an investment that will entice individuals or companies to put money into a particular project or investment.

Negative NPV

A situation where the present value of future cash flows of an investment is less than the initial investment cost, indicating a potential loss.

Project Risk

The potential for loss or failure associated with an investment or business initiative.