Which of the Following Statements Is FALSE

question 27

Multiple Choice

Which of the following statements is FALSE?

• A)The matching principle indicates that the firm should finance permanent working capital with short-term sources of funds.
• B)Following the matching principle should,in the long run,help minimize a firm's transaction costs.
• C)In a perfect capital market,the choice of financing is irrelevant;thus,how the firm chooses to finance its short-term cash needs cannot affect value.
• D)A portion of a firm's investment in its accounts receivable and inventory is temporary and results from seasonal fluctuations in the firm's business or unanticipated shocks.

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Definitions:

Debt

Money borrowed by one party from another, typically used for personal or business financing, requiring repayment with interest.

Financial Risk

The risk of monetary loss associated with investing in or running a business.

Financial Leverage

The use of borrowed money to increase the potential return of an investment.

Net Income

The total earnings of a company after deducting all expenses, taxes, and costs from its total revenue.