GT Motors Regularly Issues Short-Term Debt to Finance Its Daily

question 11

Multiple Choice

GT Motors regularly issues short-term debt to finance its daily operations. However, the credit markets suddenly tightened and GT is unable to sell debt at this time. Fortunately, they have some cash reserves that they can use to fund operations until additional credit becomes available. The need to retain cash for situations such as this represents which one of the following motives for holding cash?

• A) Speculative
• B) Float
• C) Compensating
• D) Precautionary
• E) Transaction

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Definitions:

Average Inventory

A metric that estimates the amount of inventory a business has on hand over a certain period, calculated by taking the sum of the beginning and ending inventory levels divided by two.

Periodic Inventory System

An inventory accounting system where updates to inventory levels are made on a periodic basis, as opposed to continuously.

Cost Of Goods Sold

The direct financial outlays for labor and materials that are necessary for producing goods a company sells.