José owns a custom motorcycle business. He borrowed $150,000 to set up shop and still owes $100,000. José claims that a true measure of his indebtedness is only $50,000 because he has $50,000 cash on hand that he could use to pay debt in an emergency, thereby making use of the financial measure called net debt.

Question

Quizplus · Accepted Answer

Net debt is calculated as total debt minus cash and cash equivalents. José's net debt would be $100,000 (total debt) - $50,000 (cash on hand) = $50,000.

José Owns a Custom Motorcycle Business