A Company Reports the Following in Relation to Its Latest

question 10

Multiple Choice

A company reports the following in relation to its latest financial year:
$$\begin{array} { l r } \text { Current assets } & \$ 300 \\\text { Non-current assets } & 700 \\\text { Current liabilities } & 150 \\\text { Non-current liabilities } & 250 \\\text { Shareholders' equity } & 600\end{array}$$
If the company earns a net profit after tax in the following year of $40,all received in cash,and uses this cash to repay some of its non-current liabilities,and there are no other changes in its balance sheet,its total-debt-to-equity ratio will be:

• A) unchanged
• B) 36.0%
• C) 56.25%
• D) 34.6%

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Definitions:

Autonomous Consumption

Consumption spending that occurs even when income is zero, representing the basic level of consumption necessary for survival.

Disposable Income

The monetary provision for households post the calculation of income taxes dedicated to saving and spending.

Consumption

The use of goods and services by households, which is a primary component of the economy and influences economic growth.

Induced Consumption

Refers to the portion of consumer spending that increases or decreases with disposable income.