Disadvantages of the Capital Retention Approach Include Which of the Following

question 28

Multiple Choice

Disadvantages of the capital retention approach include which of the following?
I.Assets are often liquidated too quickly.
II.It underestimates the amount of life insurance needed.

• A)I only
• B)II only
• C)both I and II
• D)neither I nor II

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Definitions:

Interest Income

The earnings received from investing in interest-bearing financial instruments, like bonds, loans, or savings accounts.

Sales-Type Lease

A lease arrangement that allows a lessor to sell an asset and earn interest income over the lease term, often used in financing agreements for expensive equipment.

Manufacturer's Profit

The difference between the cost of manufacturing a product and the price it is sold for, representing the financial gain to the manufacturer.

Ordinary Gain

A gain resulting from the sale or exchange of assets that are not capital assets, taxed at ordinary income tax rates.