Having a liquid reserve of short-term investments reduces bankruptcy risk.Having a larger pool of money available for discretionary investment also is perceived by managers

Question

Quizplus · Accepted Answer

When managers have a larger pool of money, they are seen as having more power and prestige within the company. This is because they have the ability to make discretionary investments which can have a significant impact on the direction of the company. Additionally, having a liquid reserve of short-term investments helps to reduce the risk of bankruptcy, which is a major concern for many companies. Therefore, choice A is the best answer. Choice B is not relevant to the question, and although choice C is partially correct, it does not fully capture the importance of having a liquid reserve for short-term investments.

Having a Liquid Reserve of Short-Term Investments Reduces Bankruptcy Risk