Which of the Following Statements Is FALSE

question 27

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.

Distinguish between systematic risk, unsystematic risk, total risk, and their relevance to portfolio management.

Calculate and interpret the expected return on assets and portfolios under various economic states.

Understand the role of the risk-free rate and market rate of return in determining asset pricing.

Identify the relationship between risk and return and the significance of the Security Market Line (SML).

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Definitions:

Pure Competition

A market structure characterized by an extremely large number of sellers and buyers, homogeneous products, and the ease of entering and exiting the market.

Electric Utility

Businesses involved in the production, conveyance, and distribution of electric power to end users and commercial entities.

Gas Utility

Companies that provide natural gas services to residential, commercial, and industrial customers.

Market Structure

The competitive environment characterizing a market, determined by the number of firms, product differentiation, and ease of entry and exit.