If a fiRm Maintains a Relatively High Level of Investments

question 165

Multiple Choice

If a firm maintains a relatively high level of investments in cash and marketable securities, which of the following statements is true?

• A) The firm is probably following a restrictive short-term financial policy.
• B) The firm adds little to shareholder wealth by making these types of investments.
• C) The chances of the firm facing financial distress are increased by this policy.
• D) The firm likely faces a relatively high level of shortage costs.
• E) The firm faces a relatively low level of opportunity costs.

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Definitions:

Manufacturing

The process of converting raw materials or components into finished goods through the use of tools, machinery, and labor.

Wholesale

The sale of goods in large quantities at lower prices, typically to retailers who then sell them to the final consumer.

Retail

The sale of goods to the public in relatively small quantities for use or consumption rather than for resale.

Reorder Point

The inventory level at which an order should be placed to replenish stock before it runs out, based on lead time and demand.