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problem: A firm that increases its liquidity by holding more cash and marketable securities is:

[A] Likely to achieve a higher return on equity because of higher interest income.

[B] Going to maximize firm value because risk is reduced.

[C] Likely to achieve a lower return on equity because of the smaller rates of return earned on cash and a marketable security compared to company’s other investments.

[D] Going to have to sell common stock to raise the cash to become more liquid.

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