A firm that follows an aggressive working capital financing approach is more exposed to unexpected changes in the term structure of interest rates than is a firm that follows a conservative financing policy.

Question

Quizplus · Accepted Answer

An aggressive working capital financing approach typically involves borrowing short-term funds to finance current assets, leading to a higher proportion of variable-rate debt in the firm's capital structure. This makes the firm more sensitive to unexpected changes in interest rates, which can potentially create difficulties in servicing their debt obligations. In contrast, a conservative financing policy involves relying more on stable, long-term sources of financing, which can provide greater protection against interest rate fluctuations.

A Firm That Follows an Aggressive Working Capital Financing Approach