A firm that is growing more slowly than its sustainable growth rate may generates excess cash.If the firm chooses to keep the excess cash which of the following is NOT true?
A)Holding on to excess cash may signal OVER utilization of assets.
B)Holding on to excess cash often is a negative stock signal in that investors interpret the excess cash is a result of no attractive investment alternatives.
C)Holding on to excess cash may attract unwanted potential investors who are attracted to the excess cash for their own purposes.
D)Holding on to excess cash may signal UNDER utilization of assets.

Question

Quizplus · Accepted Answer

Holding on to excess cash may signal underutilization of assets because the excess cash is not being used to expand the business or maximize shareholder value. A firm that is not utilizing its assets effectively is not necessarily attracting unwanted investors or signaling overutilization of assets. However, holding on to excess cash can be a negative stock signal because investors may interpret it as a lack of attractive investment opportunities, which may lead to decreased share prices.

A Firm That Is Growing More Slowly Than Its Sustainable