Which ONE of the following statements about working capital trade-off is true?
A) Financial managers need to balance shortage costs against carrying costs to find an optimal strategy.
B) If carrying costs are larger than shortage costs, then the company will maximise-e value by adopting a more restrictive strategy.
C) If shortage costs dominate carrying costs, the company will need to move toward a more flexible policy.
D) All of the above

Question

Quizplus · Accepted Answer

All of the statements are true. Financial managers need to balance shortage costs against carrying costs to find an optimal strategy. If carrying costs are larger than shortage costs, then the company will maximize value by adopting a more restrictive strategy. If shortage costs dominate carrying costs, the company will need to move toward a more flexible policy.

Which ONE of the Following Statements About Working Capital Trade-Off