Which of the following best describes a conservative financing policy?
A) financing part or all of the permanent working capital with short-term debt
B) financing part or all of the permanent working capital with long-term debt
C) financing part or all of the temporary working capital with short-term debt
D) financing part or all of the temporary working capital with long-term debt

Question

Quizplus · Accepted Answer

A conservative financing policy involves primarily using long-term debt to finance both permanent and temporary working capital. This approach prioritizes stability and minimizing risk, as long-term debt typically offers lower interest rates and is less sensitive to changes in interest rates. Financing working capital with short-term debt carries a higher risk of volatility and potentially higher interest rates in the future.

Which of the Following Best Describes a Conservative Financing Policy