Which of the Following Statements Is False with Regard to the Debt

question 186

Multiple Choice

Which of the following statements is false with regard to the debt ratio?

• A)It is of use to both internal and external users of accounting information.
• B)A relatively high ratio is always desirable.
• C)The dividing line for a high and low ratio varies from industry to industry.
• D)Many factors such as the company's age,stability,profitability,and cash flow influence the determination of what would be interpreted as a high versus a low ratio.
• E)The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.

Comprehend the methods for estimating the cost of equity capital.

Identify considerations in project selection and the impact of financing decisions on such selections.

Understand how flotation costs affect project evaluation and financing.

Recognize the role and calculation of the cost of debt in a firm's capital structure.

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Definitions:

Uncollectible Account

A receivable that a company has deemed unlikely to be collected and therefore considered as a loss.

Allowance Method

An accounting technique that estimates uncollectible accounts receivable and records those estimates as an expense, providing a more accurate representation of net income.

Write Off

An accounting action resulting in the reduction of the book value of an asset due to uncollectibility or loss of value, impacting profit and loss statements.

Accounting Equation

The fundamental equation that represents the relationship between a company's assets, liabilities, and shareholders' equity: Assets = Liabilities + Stockholders' Equity.