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

A current ratio of 1.1 means that the firm's current assets are 110% of its current liabilities. Therefore, the firm can afford to sell its current assets for as little as 90% of their book value to cover its current liabilities (100% / 110% = 0.909 or 90.9%).