Which of the Following Is Not a Situation That Might

question 42

Multiple Choice

Which of the following is not a situation that might lead a firm to hold marketable securities?

• A) The firm has purchased a fixed asset that will require a large write-off of depreciable expense.
• B) The firm must meet a known financial commitment, such as financing an ongoing construction project.
• C) The firm must finance seasonal operations.
• D) The firm has just sold long-term securities and has not yet invested the proceeds in earning assets.
• E) None of the statements above is correct. (All of the situations might lead the firm to hold marketable securities.)

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Definitions:

Capital Structure

The mix of a company's long-term debt and equity that it uses to finance its operations and projects.

MM

Often refers to Modigliani-Miller propositions, theoretical principles in corporate finance regarding capital structure irrelevance in perfect markets.

Debt Financing

Debt financing involves raising capital through borrowing money that must be repaid over time, typically with interest, from external sources like banks or through issuing bonds.

Bankruptcy Costs

Expenses associated with the process of declaring and handling bankruptcy, including legal fees, administrative fees, and potential losses to creditors.