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 fxed assets, the permanent portion of current assets, and a portion of the temporary component of current assets are covered by long-term debt. The remaining portion of temporary current assets is Aggressive approach covered by short-term financing. Aggressive approach Conservative approach Long-term capital finances al permanent assets, but short-term debt finances temporary current assets Maturity matching approach Some portion of foxed 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 faxed assets are fnanged with short-term loans
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 fxed assets, the permanent portion of current assets, and a portion of the temporary component of current assets are covered by long-term debt. The remaining portion of temporary current assets is Aggressive approach covered by short-term financing. Aggressive approach Conservative approach Long-term capital finances al permanent assets, but short-term debt finances temporary current assets Maturity matching approach Some portion of foxed 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 faxed assets are fnanged with short-term loans
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Which usually costs less short term or long term debt?
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education