If a Company Has a High Current Ratio but a Low

question 152

Multiple Choice

If a company has a high current ratio but a low acid-test ratio, one can conclude that:

• A) the company has a large outstanding accounts receivable balance.
• B) the company has a large investment in inventory.
• C) the company has a large amount of current liabilities.
• D) the company's financial leverage is very high.

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Definitions:

Neoclassical Assumption

A perspective in economics that assumes individuals have rational preferences, markets are capable of reaching equilibrium, and information is symmetrically distributed.

System 1

A term often used in psychology and behavioral economics, referring to the brain's fast, automatic, and intuitive approach to decision-making.

Rational Behavior

Human behavior based on comparison of marginal costs and marginal benefits; behavior designed to maximize total utility.

System 2

A term often used in psychology to refer to the deliberate, effortful, and analytical mode of thinking, contrasted with fast, automatic System 1 thinking.