Which of the following statements regarding working capital management is (are)true?
A)An irrevocable credit line will allow a firm to maintain its financial flexibility, even in times of financial distress, and is relatively low cost.
B)Investing cash in liquid assets, such as Treasury bills, allows a firm to maintain financial flexibility at no cost.
C)Matching income with liability streams works best if your cash flows are fairly predictable.
D)All of the above are true statements.

Question

Quizplus · Accepted Answer

While options A and B may offer some financial flexibility, they both come with costs. An irrevocable credit line may have fees and interest rates associated with it, while investing in liquid assets may result in lost investment opportunities and lower returns. Option C is the best choice, as matching income with liability streams is a sound strategy for managing working capital, especially if cash flows are predictable. A and B are incorrect because they both state that maintaining financial flexibility incurs little to no cost, which is not necessarily true. Option C is correct because matching income with liability streams is an effective way to manage working capital, but it requires some level of predictability in cash flows.

Which of the Following Statements Regarding Working Capital Management Is