CCI Group Inc. (Toronto) has a current ratio of 1.1. This implies that if the firm liquidates its current assets in order to pay off its current liabilities, it can sell the current assets for as little as:
A) 15% of book value.
B) 25% of book value.
C) 33% of book value.
D) 90% of book value.
E) 150% of book value.

Question

Quizplus · Accepted Answer

The current ratio of 1.1 means that the company's current assets are 110% of its current liabilities. Therefore, in the worst-case scenario, the company could afford to sell its current assets for as little as 90% of their book value and still be able to cover its current liabilities.