Multiple Choice
Which capital budgeting method focuses on incremental operating income rather than cash flows?
24
views
7. Receivables and Investments
Introduction to Investments in Securities
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
One common advantage of a long-term investment is:
A
Immediate liquidity and access to cash
B
Guaranteed protection against all market risks
C
Exemption from all forms of taxation
D
The potential for higher returns due to compounding over time
Verified step by step guidance1
Understand the concept of long-term investments: Long-term investments are assets or securities held for an extended period, typically more than a year, with the goal of achieving growth or income over time.
Recognize the principle of compounding: Compounding refers to the process where the returns earned on an investment are reinvested, allowing the investment to grow at an accelerated rate over time.
Identify the advantage of long-term investments: The potential for higher returns due to compounding over time is a key benefit, as the reinvestment of earnings can lead to exponential growth.
Compare this advantage to other options: Immediate liquidity and access to cash, guaranteed protection against market risks, and exemption from taxation are not typical benefits of long-term investments. These features are more associated with other financial instruments or strategies.
Conclude that the correct answer is based on the principle of compounding, which highlights the potential for higher returns over an extended period.
6:41mWatch next
Master Introduction to Cost Method Investments with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Introduction to Investments in Securities practice set
Problem sets built by lead tutorsExpert video explanations