The reason behind the companies choosing to finance the permanent working capital with short-term debt. Introduction: Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Question

Want to see the full answer?

Answer 1

Question

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 2

Question

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Answer 6

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Answer 7

Chapter 27, Problem 5P

Summary Introduction

To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.

Introduction:

Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.

Answer 8

Expert Solution & Answer

Answer 9

Expert Solution & Answer

Answer 10

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 11

Ch. 27.1 - Prob. 1CC Ch. 27.1 - What is the effect of seasonalities on short-term...Ch. 27.2 - Prob. 1CC Ch. 27.2 - What is the difference between temporary and...Ch. 27.3 - Prob. 1CC Ch. 27.3 - Describe common loan stipulations and fees.Ch. 27.4 - What is commercial paper?Ch. 27.4 - How is interest paid on commercial paper?Ch. 27.5 - Prob. 1CC Ch. 27.5 - What is the difference between a floating lien and...

Solution Summary: The author explains that companies prefer to finance permanent working capital with short-term debt because it is the most aggressive and risky policy.

Concept explainers

Videos

Want to see the full answer?

Chapter 27 Solutions