On the surface, it seems that a firm would want to hold high levels of current a

Question

On the surface, it seems that a firm would want to hold high levels of current assets to ensure its liquidity and its ability to meet all of its short-term obligations. However, current assets are not very productive and generate very low returns when held. Therefore, a firm must strike a balance and hold those types and quantity of current assets that work best for it. In the following table, identify which current asset investment policy is most likely to work best for each firm Current Asset Investment Policy Moderate Relaxed Restricted Universal Assemblers Inc. is a mature firm that has reliable funding sources and strong, stable cash flows. It places a higher value on avoiding current asset shortages than it does on minimizing the cost of holding current assets Frasier Furnishings tries to hold optimal levels of current assets (including cash, marketable securities, accounts receivable, and inventory), such that it balances the potential costs of running through its assets with the cost of holding balances in those assets General Forge and Foundry is a relatively young technology firm that is slightly past the startup stage but still faces significant capital constraints that do not allow any overinvestment in current assets. Consequently, the firmm must be careful about how it invests its funds

Explanation / Answer

1. Relaxed policy of current asset investment

2. Moderate policy of current asset investment

3. Resricted poicy of current asset investment

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