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.

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Chapter 27, Problem 5P

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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.

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