Paint Company Following Are Selected Data from Paint Company's Financial

question 157

Multiple Choice

Paint Company Following are selected data from Paint Company's financial statements.
Refer to the Paint Company data.
The company's debt service coverage ratio for 2012 indicates that the

• A)company's ability to pay principal and interest to creditors has declined.
• B)company has more net income available to allocate to stockholders after the payment of debt.
• C)company had significantly changes in current assets and current liabilities during the period.
• D)company generates about $2 of cash from operations to cover every $1 of debt.

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Definitions:

Lower Cash Balance Limit

The minimum amount of cash that a business aims to maintain in its cash reserves to meet emergency or operational needs.

Miller-Orr Model

The Miller-Orr Model is a financial model used to manage cash flow and determine the optimal balance between holding cash versus short-term investments.

Disbursements

Payments made by a business, often related to operational expenses or loan repayments.

Optimal Average Cash Balance

The ideal level of cash a company seeks to maintain to minimize the costs associated with holding too much or too little cash.