According to the hedging principle,fixed assets should NOT be financed with
A) permanent financing.
B) temporary financing.
C) permanent plus spontaneous financing.
D) equity financing.

Question

Quizplus · Accepted Answer

The hedging principle advises businesses to match the maturity of their assets and liabilities, and to avoid financing long-term assets with short-term financing, as this can lead to liquidity problems. Since fixed assets are long-term assets, they should not be financed with temporary financing, which is short-term financing. Therefore, option B is the correct choice. Option A (permanent financing) is a suitable source of financing for fixed assets, as it is long-term financing. Option C (permanent plus spontaneous financing) and option D (equity financing) may also be used to finance fixed assets, but they are not inherently better or worse than permanent financing, and their suitability depends on the specific circumstances of the business.

According to the Hedging Principle,fixed Assets Should NOT Be Financed