Which of the Following Statements Is Correct

question 104

Multiple Choice

Which of the following statements is correct?

• A) In the Miller-Orr model the greater the interest rate, the greater the target cash balance.
• B) In the BAT model the greater the order cost, the higher the target cash balance.
• C) If a firm chooses to borrow, rather than invest in marketable securities, it will find that borrowing is likely to be less expensive than selling marketable securities.
• D) A firm is less likely to have to borrow to cover an unexpected cash outflow the greater its cash flow variability.
• E) A firm is less likely to have to borrow to cover an unexpected cash outflow the lower its investment in marketable securities.

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Definitions:

Divisional Income

The earnings generated by distinct business units or divisions within a corporation, used to assess their individual performance.

Service Department Expenses

Costs associated with departments that support the production or operation of a company but do not directly produce goods or services, such as maintenance and human resources.

DuPont Formula

A formula that breaks down Return on Equity into three components: operating efficiency, asset use efficiency, and financial leverage.

Profit Margin

A financial ratio indicating the percentage of revenue that exceeds the costs of goods sold, reflecting the efficiency of a company in generating profit.