According to the hedging principle,which of the following assets should be financed with permanent sources of financing?
A) seasonal expansions of inventory
B) seasonal increases in accounts receivable
C) levels of inventory and accounts receivable the firm maintains throughout the year
D) none of the above

Question

Quizplus · Accepted Answer

The hedging principle suggests that permanent sources of financing should be used to finance those assets that are maintained throughout the year, in order to avoid the risk of having to liquidate long-term assets to cover short-term liabilities. Inventory and accounts receivable are typically held by a firm throughout the year, and are therefore best financed with permanent sources of financing. Seasonal expansions of inventory and increases in accounts receivable, on the other hand, are temporary in nature and can be financed with short-term sources of financing, such as a line of credit or a short-term loan.

According to the Hedging Principle,which of the Following Assets Should