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If XYZ Ltd. incurs (with purchase and installation of machinery) using cash, which of the following ratios will remain unchanged, if all other things remain constant?
Suggested Answer: C
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31 comments · newest first
LE
Lettie
11 months ago
Wait, how can none of the ratios change? That seems off!
SH
Shanda
11 months ago
Asset Turnover ratio is definitely affected by this.
RO
Rosann
11 months ago
Totally agree, Current Ratio is unaffected!
RO
Rory
11 months ago
I think the Quick Ratio might change though, right?
CH
Charlette
11 months ago
Current Ratio stays the same since cash and machinery are both assets.
LY
Lynelle
12 months ago
I feel like none of the ratios would remain unchanged since cash is being spent, but I need to double-check my notes on that.
MI
Miss
12 months ago
I practiced a similar question where the asset turnover ratio was mentioned, but I can't remember if it stays the same when cash is involved.
VE
Verda
1 year ago
I think the current ratio will definitely change because cash is being used up, but I can't recall if the quick ratio would be affected in the same way.
EL
Elly
1 year ago
I remember that the asset turnover ratio might change since we're adding machinery, but I'm not sure how cash affects it.
MI
Mindy
1 year ago
Yeah, I agree with that logic. I think the only ratio that would change is the debt-to-equity ratio, since the cash outflow would decrease the equity. But the question is asking about which ratios remain unchanged, so the answer is B.
WI
William
1 year ago
I'm pretty confident the asset turnover ratio would also remain unchanged. The increase in non-current assets would be offset by the cash outflow, so the total assets wouldn't change.
LE
Leatha
1 year ago
Okay, let's see. The purchase and installation of machinery using cash would increase the company's non-current assets, but it wouldn't affect the current assets or liabilities. So I think the current ratio and quick ratio would remain unchanged.
JU
Judy
1 year ago
I'm not entirely sure about this one. I'll need to think through the impact on the different ratios carefully.
FR
France
1 year ago
I think the answer is B) Asset Turnover ratio because it is not directly affected by cash transactions.
JI
Jillian
1 year ago
This is a classic trick question. The key is that 'all other things remain constant', so the asset turnover ratio is the only one unaffected.
CA
Carin
1 year ago
A) None of the three
JE
Jerry
1 year ago
I'm not sure, but I think the answer might be A) None of the three.
RO
Royal
1 year ago
I disagree, I believe the answer is D) Quick Ratio.
LA
Lavera
1 year ago
Ha! Looks like the correct answer is B. I bet the other candidates are scratching their heads on this one.
HE
Herminia
1 year ago
I was torn between B and C, but now I see why it's B.
MA
Maybelle
1 year ago
Yeah, that makes sense. Cash doesn't affect that ratio.
QU
Quentin
1 year ago
I think it's B) Asset Turnover ratio.
CA
Carri
1 year ago
I think the answer is C) Current Ratio.
LI
Lindsey
1 year ago
I'm pretty sure the current and quick ratios would be affected since cash is being used. This is a tricky one!
HO
Hobert
1 year ago
B) Asset Turnover ratio
CA
Carey
1 year ago
I think the Asset Turnover ratio would remain unchanged.
RO
Rozella
1 year ago
A) None of the three
CA
Catalina
1 year ago
The asset turnover ratio should remain unchanged, as the machinery purchase would increase both assets and sales proportionately.
CH
Cherelle
1 year ago
C) Current Ratio
DA
Dannette
1 year ago
B) Asset Turnover ratio
JO
Johnson
1 year ago
A) None of the three