A Firm with Assets That Will Convert to Cash Within

question 103

Multiple Choice

A firm with assets that will convert to cash within the next 12 months, less than its obligations to pay cash in this same interval, has

• A)positive working capital and a current ratio that is less than one.
• B)positive working capital and a current ratio that exceeds one.
• C)negative working capital and a current ratio that exceeds one.
• D)negative working capital and a current ratio that is less than one.
• E)a serious liquidity problem.

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Definitions:

Strike Price

The set price at which an option contract can be bought (call) or sold (put) when it is exercised.

Underlying Stock

The stock that must be delivered when a derivative contract, like an option or futures contract, is exercised.

Initial Cost

The initial expenditure involved in purchasing an asset or starting a project.

Exercise Price

The established price at which an option holder may execute the purchase (in a call option scenario) or sale (when dealing with a put option) of the related security or commodity.