Suppose a firm occasionally faces demand for short-term credit but usually has an excess of short-term capital to finance current assets. Which approach is the firm following? O Aggressive approach O Conservative approach Maturity matching approach

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Answer the second question
Firms manage a variety of current assets. Permanent current assets are needed for the ffirm to maintain its business, and they will be carried even
through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Each firm must devise a financing
strategy that best fits its business situation and best manages its risk.
In the following table identify the different current asset financing policies.
Financing Policy
Description
All fixed assets, the permanent portion of current assets, and a portion of the temporary component of
Aggressive approach
current assets are covered by long-term debt. The remaining portion of temporary current assets is
covered by short-term financing.
Aggressive approach
Conservative approach
Long-term capital finances all permanent assets, but short-term debt finances temporary current
assets
Maturity matching approach
Some portion of fixed assets and the permanent portion of current assets are financed with long-term
capital, and all temporary needs of current assets and the remaining portion of fixed assets are
financed with short-term loans
Transcribed Image Text:Firms manage a variety of current assets. Permanent current assets are needed for the ffirm to maintain its business, and they will be carried even through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Each firm must devise a financing strategy that best fits its business situation and best manages its risk. In the following table identify the different current asset financing policies. Financing Policy Description All fixed assets, the permanent portion of current assets, and a portion of the temporary component of Aggressive approach current assets are covered by long-term debt. The remaining portion of temporary current assets is covered by short-term financing. Aggressive approach Conservative approach Long-term capital finances all permanent assets, but short-term debt finances temporary current assets Maturity matching approach Some portion of fixed assets and the permanent portion of current assets are financed with long-term capital, and all temporary needs of current assets and the remaining portion of fixed assets are financed with short-term loans
Suppose a firm occasionally faces demand for short-term credit but usually has an excess of short-term capital to finance current assets. Which
approach is the firm following?
O Aggressive approach
O Conservative approach
O Maturity matching approach
Which usually costs less-short-term or long-term debt?
O Short-term debt
O Long-term debt
Transcribed Image Text:Suppose a firm occasionally faces demand for short-term credit but usually has an excess of short-term capital to finance current assets. Which approach is the firm following? O Aggressive approach O Conservative approach O Maturity matching approach Which usually costs less-short-term or long-term debt? O Short-term debt O Long-term debt
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