ment Read Chapter 16 1 Back to Assignment Due Sunday 07.01.18 at 11 tempts: Keep
ID: 2619590 • Letter: M
Question
ment Read Chapter 16 1 Back to Assignment Due Sunday 07.01.18 at 11 tempts: Keep the Highest: /3 1. Financing current assets Aa Aa What are the current asset financing strategies that firms adopt? Firms manage a variety of current assets. Permanent current assets are needed for the firm 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 Use the following table to identify the different current asset financing policies. Description Some portion of fixed assets and the nonseasonal portion of Financing Policy current assets are financed with long-term capital, and al seasonal needs of current assets and the remaining portion of fixed assets are financed with short-term loans Long-term capital finances all permanent current asscts and some temporary financing needs. All fixed assets and the nonseasonal portion of current assets are financed with long-term capital, and seasonal needs of current assets are financed with short-term loans. MacBool 80 5Explanation / Answer
1) The first financing way refers to Aggressive financing strategy where a company finances a one portion of non seasonal current assets and all seasonal current assets with short term sources and the remaining proportion of permanent current assets and fixed assets with long term capital
2) The second financing refers to Maturity matching financing strategy where long term capital is used to finance all the current assets and fixed assets
3) The third financing refers to Conservative financing strategy where all the fixed assets and non seasonal current assets are financed with long term capital and short term capital is used to finance seasonal needs of current assets.
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