Asked by Claudia Gonzalez on Jul 07, 2024
Verified
Which of the following regarding current asset financing is correct?
A) In an ideal world, net working capital would be zero.
B) A flexible policy always implies a short-term cash surplus.
C) A restrictive policy uses short-term borrowing for permanent asset requirements.
D) In a compromise policy, short-term borrowing is used, at least partially, in place of maintaining a liquidity reserve.
E) Most firms do not have seasonal variations in total asset requirements and, as a result, do not need a current assets management policy.
Current Asset Financing
A strategy involving the use of short-term credit to finance the ongoing operations and current assets of a business.
Net Working Capital
The difference between a company's current assets and its current liabilities.
Flexible Policy
A strategy that allows for adaptability and change in response to different situations or conditions.
- Appreciate the effects that different financial policies have on a business's liquidity and the management of its cash resources.
Verified Answer
JL
Jacqueline LanderosJul 08, 2024
Final Answer :
D
Explanation :
A compromise policy involves using short-term borrowing to manage liquidity needs without fully committing to maintaining a large liquidity reserve, allowing for a balance between risk and return.
Learning Objectives
- Appreciate the effects that different financial policies have on a business's liquidity and the management of its cash resources.
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