A firm which uses the aggressive financing strategy plans to purchase a major fixed asset financed with a loan. The most likely consequence of this action is ________.
A) a decrease in the current ratio
B) an increase in net working capital
C) a decrease in the risk of insolvency
D) an increase in long-term debt

Question

Quizplus · Accepted Answer

Aggressive financing strategy involves taking on more debt to finance growth opportunities or major fixed assets. Therefore, the most likely consequence of purchasing a major fixed asset through a loan is an increase in long-term debt. The other options, such as a decrease in current ratio and an increase in risk of insolvency, may also occur depending on the specifics of the situation, but they are not direct consequences of the financing strategy itself. An increase in net working capital is unlikely to be a consequence of this action.

A Firm Which Uses the Aggressive Financing Strategy Plans to Purchase