Which two of the following four conditions are most apt to cause a quarterly cash shortfall for a ﬁrm which is ﬁnancially sound?
I.A relatively constant level of sales.
II.Periodic expenditures for major equipment purchases.
III.A steady dependence on a constant level of external ﬁnancing.
IV.Highly seasonal sales.
A)I and III only.
B)II and IV only.
C)III and IV only.
D)I, II and III only.
E)II, III and IV only.

Question

Quizplus · Accepted Answer

II and IV are the two conditions that are most apt to cause quarterly cash shortfall for a financially sound firm.

II - Periodic expenditures for major equipment purchases can greatly impact the cash flow during the quarter in which the purchase is made.

IV - Highly seasonal sales can result in uneven cash inflows and can cause cash flow problems during off-seasons.

I and III do not directly impact cash flow as much as II and IV. Constant level of sales (I) may cause minor fluctuations, but not significant cash shortfalls. Steady dependence on external financing (III) may indicate a potential cash shortfall in the long-term but not necessarily a quarterly cash shortfall.

Which Two of the Following Four Conditions Are Most Apt