Company a Has Current Assets of $42 Billion and Current

question 83

Multiple Choice

Company A has current assets of $42 billion and current liabilities of $41 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information?

• A) Company A is less likely than Company B to have sufficient working capital to meet its short-term needs.
• B) Company A has greater leverage than Company B.
• C) Company A has less leverage than Company B.
• D) Company A and Company B have roughly equivalent enterprise values.

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Definitions:

Side-Effect Costs

Unintended expenses or losses that occur as a result of business decisions, not directly related to the project in question.

Incremental Overhead

Additional overhead costs that are incurred when an organization increases its production volume or undertakes new activities.

Financing Costs

Expenses incurred by a company in the process of raising capital through debts and/or equity, including interest payments and commissions.

Basic Overheads

The regular and necessary costs, such as rent and utilities, that are involved in operating a business.