Which of the following actions would improve a firm\'s liquidity? A. selling bon

Question

Which of the following actions would improve a firm's liquidity?
A. selling bonds and increasing cash
B. increasing the company's dividend payments
C. repurchasing stock
D. buying bonds

Which of the following actions would improve a firm's liquidity?
A. buying machinery with long term debt
B. purchasing inventories for cash
C. purchasing inventory on trade credit
D. purchasing inventory with long term debt

I think A and C.

Please give detailed explanations for which answers you find correct.

Thanks

Explanation / Answer

For the first question, option A. is correct.

Cash is a current asset and it has more liquidity. By selling bonds we would receive money in the form of cash, which ensures the firms liquidity more.

Coming to the other options repurchase of stock any decrease the cash balance, company’s dividends treated as liability, by buying bonds we have to pay more money and we don’t know which type of bond it is, whether short term or long- term.

For the second question, option C. is correct.

Because the for trade credit we have to amount in the future. Future is uncertain and money received today is more worth the money received in the future. Therefore it is considered as current asset. As we all know current assets have more liquidity.

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