Which of the following statements about working capital trade-off is NOT true?
A) Financial managers need to balance shortage costs against carrying costs to find an optimal management strategy.
B) If carrying costs are smaller than shortage costs, then the firm will maximize value by adopting a more restrictive strategy.
C) If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy.
D) Management will try to find the level of current assets that minimizes the sum of the carrying costs and shortage costs.

Question

Quizplus · Accepted Answer

If carrying costs are smaller than shortage costs, the firm will minimize costs and maximize value by adopting a more flexible strategy rather than a more restrictive one.

Which of the Following Statements About Working Capital Trade-Off Is