Which of the Following Statements Is FALSE

question 67

Multiple Choice

Which of the following statements is FALSE?

• A) When following a conservative financing policy, a firm would use long-term sources of funds to finance its fixed assets, permanent working capital, and some of its seasonal needs.
• B) An aggressive financing policy also increases the possibility that managers of the firm will use this excess cash nonproductively-for example, on perquisites for themselves.
• C) A firm could finance its short-term needs with long-term debt, a practice known as a conservative financing policy.
• D) To implement a conservative financing policy effectively, there will necessarily be periods when excess cash is available-those periods when the firm requires little or no investment in temporary working capital.

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Definitions:

Solvency

The ability of an entity to meet its long-term debts and financial obligations.

Times Interest Earned Ratio

A financial ratio that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.

Inventory Turnover

A measure of how quickly a company sells its inventory within a given period, indicating the efficiency in managing and selling products.

Carrying Amount

The book value of an asset or liability; for assets, it's typically the original cost less any depreciation.