All other things being equal, a policy of holding a relatively ____ proportion of the firm's total assets in the form of current assets will tend to result in a ____ expected profitability or rate of return on the total assets of the firm.
A) large; higher
B) small; higher
C) constant; higher
D) constant; lower

Question

Quizplus · Accepted Answer

Holding a relatively small proportion of current assets means that the firm is investing more in long-term assets which have a higher expected rate of return than current assets. This results in a higher expected profitability or rate of return on the total assets of the firm.

All Other Things Being Equal, a Policy of Holding a Relatively