Question

Which of the following statements is correct?A. The cash ratio measures a firm’s ability to pay long-term debt with its available cash and marketable securities.B. Holding extremely high levels of liquidity to guard against liquidity crises is an inappropriate goal for the firm.C. The quick (or acid-test) ratio measures a firm’s ability to pay off short-term obligations with long-term debt.D. The current ratio is a more stringent measure of liquidity than the quick (or acid-test) ratio.

Answer 1

The answer is B. Holding extremely high levels of liquidity to guard against liquidity crises is an inappropriate goal for the firm.

Step-by-step explanation:

The opportunity cost tied up in extremely high levels of liquidity is high.