Question

Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities? a. The firm just won a product liability suit one of its customers had brought against it. b. The firm must make a known future payment, such as paying for a new plant that is under construction. c. The firm has just sold long-term securities and has not yet invested the proceeds in operating assets. d. The firm is going from its peak sales season to its slack season, so its receivables and inventories will experience a seasonal decline. e. The firm is going from its slack season to its peak sales season, so its receivables and inventories will experience seasonal increases.

Answer 1

Answer:  e. The firm is going from its slack season to its peak sales season, so its receivables and inventories will experience seasonal increases.

Explanation:

A company increases it's holdings in short term marketable securities when it has money idle that isn't being put towards anything. It would therefore make sense to invest that money in short term securities to make some sort of profits by way of returns.

When a company is going from it's slack season to its peak season, they will have to use the cash that they have to I crease their inventory so as to better prepare for anticipated increased sales. They therefore cannot be using the cash they have to invest in short term securities making option e. the right answer.