The aggressive financing strategy is risky in two respects: the firm operates with a low level of ___________,and the firm has only a limited amount of ___________capacity.
A) current assets; long-term borrowing
B) net working capital; long-term borrowing
C) net working capital; short-term borrowing
D) current liabilities; short-term borrowing

Question

Quizplus · Accepted Answer

An aggressive financing strategy typically involves borrowing heavily in the short-term to fund operations or investments. This can result in a low level of net working capital (current assets minus current liabilities), which is the amount of liquidity available to the company to meet its short-term obligations. Additionally, the firm may only have a limited amount of capacity (either in terms of physical assets or borrowing capacity) to continue financing operations if cash flow becomes tight or credit becomes less available. Therefore, the best choice is C - net working capital and short-term borrowing.

The Aggressive Financing Strategy Is Risky in Two Respects: the Firm