A Small Company Has Current Assets of $112,000 and Current

question 91

Multiple Choice

A small company has current assets of $112,000 and current liabilities of $117,000. Which of the following statements about that company is most likely to be true?

• A) Since net working capital is negative, the company will not have enough funds to meet its obligations.
• B) Since net working capital is high, the company will likely have little difficulty meeting its obligations.
• C) Since net working capital is very high, the company will have ample money to invest after it meets its obligations.
• D) Since net working capital is nearly zero, the company is well run and will have little difficulty attracting investors.

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Definitions:

Probability of Default

An estimate of the likelihood that a borrower will be unable to meet debt obligations as specified in the terms of the loan, typically expressed as a percentage.

Indebtedness

The state of owing money or being obliged to repay a monetary loan.

One-Time Customer

A consumer who purchases goods or services from a business only once.

Variable Cost

Costs that vary directly with the level of production or with the volume of services provided.