Question

sate whether the following statement are true or fslse. - Increase in current liabilities and decrease...

sate whether the following statement are true or fslse.

- Increase in current liabilities and decrease in current asset represents inflow cash.
- If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction.
- Activity ratios explain the firm ability to use assets efficiently.
- Trade - Off between Risk - Return is the main principle to maximize the firm value.
- Reduce inventory and use the proceeds to pay off a part of current liabilities will lead to increase the quick ratio.
- Unethical Behavior of the manager includes using the information that not available to the public to make money

Homework Answers

Answer #1

1. TRUE. Increase in current liabilities and decrease in current assets represents inflow of cash.

2. FALSE. It is a secondary market tranaction.

3. TRUE. Activity ratios explain the firm's ability to use assets efficiently.

4. TRUE

5. TRUE. Quick ratio is given by :

Quick ratio = Current assets - Inventories / Current liabilities

In the above formula,when inventories in the numerator are decreased and current liabilities in the denominator are decreased, then quick ratio will increase.

6. TRUE

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