Question

Which of the following may be true of debt covenants?

A. Limit the issuance of additional debt senior to the obligation.
B. Specify minimum levels of selected financial ratios.
C. Specify minimum levels of earnings coverage.
D. All of the above.

All other things being equal, all of the following actions will increase financial leverage except:

A. Repurchase stock
B. Sell accounts receivable at face value
C. Issue more bonds
D. Pay higher dividends

Which statement is TRUE?

A.    Liquidity is viewed as a company's ability to meet its short-term and long-term obligations.

B.      Liquidity is generally measured by a company's ability to pay its short-term obligations using its short-term assets.

C.      The higher the cash to current liabilities ratio of a company, the better is the company.

D.    The use of LIFO will inflate the current ratio under normal economic conditions.  

Answer 1

Which of the following may be true of debt covenants?

Answer: D. All of the above.

All other things being equal, all of the following actions will increase financial leverage except:

Answer: B. Sell accounts receivable at face value

Explanation: As the sell of accounts receivables will not effect equity and debt.

Which statement is TRUE?

Answer: B.      Liquidity is generally measured by a company's ability to pay its short-term obligations using its short-term assets.

Explanation: Liquidity term is use in respect of short term only (not long term)