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Which one of the following is a working capital decision? Multiple Choice

A)What is the cost of debt financing?
B)What debt-equity ratio is best suited to the firm?
C)Should the firm borrow money for five or for ten years?
D)How much cash should the firm keep in reserve?
E)How should the firm raise additional capital to fund its expansion?

User Sergius
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Final answer:

The working capital decision in the multiple-choice question is about determining the firm's cash reserves. For the critical thinking question, borrowing maintains firm control with fixed payments, while issuing stock dilutes ownership but carries no obligation to pay if unprofitable.

Step-by-step explanation:

The question pertains to a working capital decision, which is concerned with managing the short-term finances of a company. Among the multiple-choice options, the one that is a working capital decision is D) How much cash should the firm keep in reserve? This decision involves determining the appropriate level of cash and other liquid assets a firm needs to operate smoothly on a day-to-day basis.

Regarding the critical thinking question, if I owned a small firm needing capital for expansion, the choice between borrowing or issuing stock would depend on the firm's current financial situation, control considerations, and income stability. Borrowing allows the firm to maintain control but requires fixed interest payments regardless of income, while issuing stock dilutes ownership but doesn't require payments if the company isn't profitable.

User Petero
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