Which two of the following four conditions are most apt to cause a quarterly cash shortfall for a firm which is financially sound?
I. a relatively constant level of sales
II. periodic expenditures for major equipment purchases
III. a steady dependence on a constant level of external financing
IV. highly seasonal sales
A) I and III only
B) II and IV only
C) III and IV only
D) I, II and III only
E) II, III and IV only

Question

Quizplus · Accepted Answer

Periodic expenditures for major equipment purchases and highly seasonal sales are the two conditions that are most likely to cause quarterly cash shortfalls for a financially sound firm. Major equipment purchases require a significant amount of cash outflow, while highly seasonal sales can lead to uneven cash inflows, leaving the firm with a shortage of liquidity at certain times of the year. Relatively constant sales and a steady dependence on external financing are less likely to directly cause cash shortfalls for a financially sound firm.

Which Two of the Following Four Conditions Are Most Apt