Question

A flexible short-term financial policy:

a. Increases a firm's need for long-term financing.
b. Minimizes net working capital.
c. Avoids bad debts by only selling items for cash.
d. Maximizes fixed assets and minimizes current assets.
e. Is most appropriate for a firm with relatively high carrying costs and relatively low shortage costs.

Answer 1

A flexible short-term financial policy is most appropriate for a firm with high carrying costs and low shortage costs. It helps avoid the need for long-term financing and minimize bad debts. By effectively managing working capital, the firm can meet its short-term needs without significant cost disadvantages.

Step-by-step explanation:

A flexible short-term financial policy is most appropriate for a firm with relatively high carrying costs and relatively low shortage costs. This means that the firm can afford to hold more current assets, such as cash and inventory, to meet its short-term needs without facing significant cost disadvantages. By doing so, the firm can avoid the need for long-term financing, minimize the risk of bad debts, and effectively manage its working capital.