Answer (D) is correct . Cash and short-term investments are crucial to a firm’s continuing success. Sufficient liquidity must be available to meet payments as they come due. At the same time, liquid assets are subject to significant control risk. Therefore, liquidity and safety are the primary concerns of the treasurer when dealing with highly liquid assets. Cash and short-term investments are held because of their ability to facilitate routine operations of the company. These assets are not held for purposes of achieving investment returns.
Answer (A) is incorrect because Most companies are not in business to earn high returns on liquid assets (i.e., they are held to facilitate operations).
Answer (B) is incorrect because The holding of cash and cash-like assets is not a major factor in controlling taxes.
Answer (C) is incorrect because Investments in Treasury bonds do not have sufficient liquidity to serve as short-term assets.
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