With the matching approach to meeting the financing needs of the firm, fixed and permanent current assets are financed with
A)long-term debt only
B)equity funds only
C)both long-term debt and equity funds
D)neither long-term debt nor equity funds

Question

Quizplus · Accepted Answer

According to the matching approach, fixed and permanent current assets should be financed with long-term debt and equity funds. Long-term debt provides stability and a fixed source of funds for the firm, while equity funds provide flexibility and the ability to raise additional capital if necessary. By using both long-term debt and equity, the firm can ensure that its financing mix matches the expected duration of its assets and liabilities, reducing the risk of financial distress. Therefore, option C, both long-term debt and equity funds, is the best choice.

With the Matching Approach to Meeting the Financing Needs of the Firm