Question

Assertion (A): Debt to Equity Ratio of 2 : 1 is considered satisfactory. Generally, a Low Ratio is considered favourable.

Reason (R): This ratio indicates the proportionate claims of owners and outsiders on firm's assets. High Ratio shows claims of outsiders are greater but Low Ratio shows outsiders claims are less.

Options

• Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true, but Reason (R) is false.

• Assertion (A) is false, but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).