[amp_mcq option1=”Both (A) and (R) are correct, and (R) is the correct reason for (A)” option2=”Both (A) and (R) are correct, but (R) does not explain (A) correctly” option3=”(A) is correct, but (R) is incorrect” option4=”(A) is incorrect, but (R) is correct” correct=”option1″]
The correct answer is: A. Both (A) and (R) are correct, and (R) is the correct reason for (A).
Debt-equity ratio is a measure of a company’s financial leverage, which is the extent to which a company uses debt to finance its assets. A high debt-equity ratio indicates that a company is using a lot of debt to finance its assets, which can be risky if the company is unable to repay its debt.
The ability of a company to pay off its long-term liabilities is a measure of its long-term solvency. A company with a high debt-equity ratio may have difficulty paying off its long-term liabilities if it experiences financial difficulties.
Therefore, both (A) and (R) are correct, and (R) is the correct reason for (A).