Which of the Following Combinations of Asset Structures and Financing

question 77

Multiple Choice

Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?

• A) Illiquid assets and heavy short-term borrowing
• B) Illiquid assets and heavy long-term borrowing
• C) Liquid assets and heavy long-term borrowing
• D) Liquid assets and heavy short-term borrowing

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Definitions:

Lease Residual Value

The estimated value of a leased asset at the end of the lease term.

Loss on Sale

Occurs when the sale price of an asset is less than its carrying amount on the books.

Treasury Shares

Stocks that the original issuing company repurchased, subsequently decreasing the quantity of available shares in the market.