Which of the following asset classes is generally considered to be the least liquid?

• A. Inventory
• B. Accounts receivable
• C. Property, plant, and equipment
• D. Cash and cash equivalents

Answer: (C)

Verified step by step guidance

1. Understand the concept of liquidity: Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its value. The more liquid an asset, the faster it can be converted into cash.
2. Analyze each asset class: Start by evaluating the liquidity of each option provided in the question. For example, cash and cash equivalents are the most liquid because they are already in cash form or can be converted immediately.
3. Compare inventory and accounts receivable: Inventory is less liquid than accounts receivable because inventory must first be sold to generate cash, whereas accounts receivable represents amounts already owed to the company and can be collected more quickly.
4. Evaluate property, plant, and equipment (PPE): PPE is considered the least liquid because these are long-term assets that cannot be easily or quickly converted into cash. Selling PPE often requires significant time and effort, and the sale may involve a loss in value.
5. Conclude based on the analysis: Based on the liquidity hierarchy, property, plant, and equipment is the least liquid asset class among the options provided.