Use this information to answer the following questions:
Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200,000. It borrows $75,000 from a finance company, repayable in 5 years.
-What is the immediate effect of the loan on current net profit?
A) There is a decrease of $75 000.
B) There is no immediate effect.
C) It cannot be determined from the information provided.
D) There is an increase of $75 000.

Question

Use this information to answer the following questions:
Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200,000. It borrows $75,000 from a finance company, repayable in 5 years. 
-What is the immediate effect of the loan on current net profit?
A) There is a decrease of $75 000.
B) There is no immediate effect.
C) It cannot be determined from the information provided.
D) There is an increase of $75 000.

Quizplus · Accepted Answer

Taking on a loan does not immediately affect current net profit, as it only affects the balance sheet. Current net profit is determined by subtracting total expenses from total revenue, and a loan does not impact either of those figures.

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