1. Using only the information below, which company likely can produce products more cheaply than its competitors? Company A has Profit Margin of 9%, Current Assets of $300M, Current Liabilities of $280M, and a Debt/Equity ratio of 2.5 Company B has Profit Margin of 20%, Current Assets of $175M, Current Liabilities of $120M, and a Debt/Equity ratio of 4.0
Company B because it has a higher profit margin
Company A because it has more current assets
Company A because it is more leveraged
Company B because it has a higher current ratio
2. In which scenario should a company be most inclined to issue additional debt?
The company has many investment opportunities, little debt, and an undervalued stock price
The company is illiquid with an overvalued stock price and high leverage
The company’s stock price has just doubled as they completed a 2-1 stock split
Interest rates have tripled in the last 3 months to a 20-year high