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Home Grades Personalized Reviews Discussion Course Materials Working Capital Management Graded Assignment | Read Chapter 15 Back to Assignment Due Thursday 08.02.18 at 11:45 PM Attempts: Keep the Highest:/4 4. Current asset financing policies Aa Aa Firms manage a variety of current assets. Permanent current assets are necessary for firms to maintain their businesses, and they will be carried even through downturns in business cydles. Temporary current assets fluctuate seasonally or with business cydes. Firms must devise a financing strategy that best fits their business situation and that best manages their risk. Use the following table to identify the different current asset financing policies. Description Financing Policy [ Long-term capital finances all permanent assets, but short-term debt finances temporary current assets Long-term capital finances all fixed assets and the nonseasonal portion of current assets, as well as seasonal needs of current assets Long-term capital finances some portion of the nonseasonal part [ of current assets, as well as all fixed assets, and short-ternm loans finance all seasonal needs of current assets and the remaining portion of nonseasonal current assets. Why does the conservative approach tend to be less profitable than the other current asset financing policy approaches? O All current asset financing approaches have the same potential profitability O Taking out long-term debt tends to be more profitable than taking out short-term debt. O Short-term debt is usually cheaper than long-term debt. WIN 30,0,0,13 2004-2016 Apla A. rights reserved. Q3 ] 34 ? 2013 Cengage Learning except as noted. All rights nerved Continue without saving

Explanation / Answer

Firms following conservative approach usually go for Long term capital finances. Long term debts usually charge high interest which decreses profitability.

Short term debt is usually cheaper than long term debt.

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