Freestone Company Is Considering Renting Machine Y to Replace Machine

question 12

Multiple Choice

Freestone Company is considering renting Machine Y to replace Machine X.It is expected that Y will waste less direct materials than does X.If Y is rented,X will be sold on the open market.For this decision,which of the following factors is (are) relevant?
I.Cost of direct materials used
II.Resale value of Machine X

• A)Only I
• B)Only II
• C)Both I and II
• D)Neither I nor II

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available to run its operations.

Current Ratio

A liquidity ratio that measures a company’s ability to pay short-term obligations with its current assets.

Current Liabilities

Short-term financial obligations that a company is required to pay within one year.

Acid-Test Ratio

A financial metric used to determine a company's short-term liquidity position by calculating the ratio of its most liquid assets to its current liabilities.