Which of the Following Statements Is False

question 3

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:

Perfect Hedge

A hedging strategy that completely eliminates the risk associated with a particular position or portfolio.

Interest Rates

The fee, shown as a percentage of the principal amount, that a lender requires from a borrower for the utilization of resources.

Prices Rise

An economic phenomenon where the general level of prices for goods and services increases over time.

Futures Contract

An arrangement, enforceable by law, where individuals agree to trade a specified commodity or financial instrument at a previously established price, to be fulfilled at a specified time ahead.