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:

Risk-Free Rate

The rate of return on an investment with no risk of financial loss, typically represented by government bonds.

Inflation Rate

The inflation rate measures the annual percentage increase in the general price level of goods and services in an economy, indicating how quickly prices are rising.

March Put

An options contract which grants the holder the right to sell a specific financial instrument at a predetermined price before or at a specified date in March.

Underlying Stock

Refers to the specific security or asset on which a derivative instrument, such as an option or future, is based.