Ideally, which of the following type of assets should be financed with long-term financing?
A) Fixed assets only
B) Fixed assets and temporary current assets
C) Fixed assets and permanent current assets
D) Temporary and permanent current assets

Question

Quizplus · Accepted Answer

Long-term financing should be used to finance fixed assets and permanent current assets. Fixed assets are generally long-term in nature and should have long-term financing to match the asset's useful life. Permanent current assets are those that support ongoing operations, such as inventory and accounts receivable, and also should be financed with long-term financing to provide stability and consistency in funding. Financing temporary current assets with long-term financing is not advisable because those assets are short-term in nature, so it could create a mismatch of cash flows and repayment schedules.

Ideally, Which of the Following Type of Assets Should Be