Which of the Following Is NOT True About the Flexible

question 36

Multiple Choice

Which of the following is NOT true about the flexible current asset investment strategy?

• A) The strategy promotes a liberal trade credit policy for customers.
• B) The strategy calls for management to invest large amounts in cash, short-term investments, and inventory.
• C) The strategy is perceived be a high-risk and high-return course of action for management to follow.
• D) The strategy's downside is the high inventory carrying cost.

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Definitions:

Compounded Monthly

The process where interest earned on an investment is added to the principal each month, with future interest then earned on the new total.

Semi-Annually

Describes an event or action that occurs twice a year, typically every six months.

Present Values

The valuation in today's currency of future cash flows or a lump sum, factoring in a specific rate of return.

Discount Rate

This is the interest rate that's used to determine the current value of future cash flows in the analytical process of discounted cash flow.