28. Which of the following would NOT improve the current ratio?

a) Borrow short term to finance additional fixed assets.

b) Issue long-term debt to buy inventory.

c) Sell common stock to reduce current liabilities.

d) Sell fixed assets to reduce accounts payable.

8 | P a g e

29. The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if

a) cost of goods sold increased relative to sales.

b) sales increased relative to expenses.

c) Govt. increased the tax rate.

d) dividends were decreased.

30. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company

a) will not experience any difficulty with its creditors.

b) has less liquidity than other firms in the industry.

c) will be viewed as having high creditworthiness.

d) has greater than average financial risk when compared to other firms in its industry