Professional Documents
Culture Documents
3. Which asset-liability combination would most likely result in the firm's having the
greatest risk of technical insolvency?
Increasing current assets while lowering current liabilities.
Increasing current assets while incurring more current liabilities.
Reducing current assets, increasing current liabilities, and reducing long-term
debt.
Replacing short-term debt with equity.
4. Which of the following illustrates the use of a hedging (or matching) approach to
financing?
Short-term assets financed with long-term liabilities.
Permanent working capital financed with long-term liabilities.
Short-term assets financed with equity.
All assets financed with a 50 percent equity, 50 percent long-term debt
mixture.
5. In deciding the appropriate level of current assets for the firm, management is
confronted with
a trade-off between profitability and risk.
a trade-off between liquidity and marketability.
a trade-off between equity and debt.
a trade-off between short-term versus long-term borrowing.