Halka Company is a no-growth firm.Its sales fluctuate seasonally,causing total assets to vary from $295,000 to $410,000,but fixed assets remain constant at $260,000.If the firm follows a maturity matching (or moderate)working capital financing policy,what is the most likely total of long-term debt plus equity capital?

Question

Quizplus · Accepted Answer

In a maturity matching policy, long-term financing (debt plus equity) covers fixed assets and the permanent portion of current assets. Since fixed assets are $260,000 and the minimum total assets are $295,000, the permanent portion of current assets is $35,000 ($295,000 - $260,000). Therefore, long-term debt plus equity capital is $295,000.

Halka Company Is a No-Growth Firm