Company a Has Current Assets of $42 Billion and Current

question 83

Multiple Choice

Company A has current assets of $42 billion and current liabilities of $41 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information?

• A) Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.
• B) Company A has greater leverage than Company B.
• C) Company A has less leverage than Company B.
• D) Company A and Company B have roughly equivalent enterprise values.

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Definitions:

Per Se Rule

Legal doctrine stating that an action or condition is inherently illegal or violates a law in itself, without the need for additional proof.

Rule-Of-Reason Standard

A legal principle used in antitrust law to determine if a business practice is anticompetitive, weighing its pro-competitive benefits against its anti-competitive effects.

Poison Pill Defense

A strategy used by companies to prevent or deter hostile takeovers by making the target company less attractive to the acquirer.

Greenmail Arrangement

A situation where a company buys back its own shares from a potential acquirer at a higher price to avoid a takeover attempt.