The principle of maturity matching suggests that
A) machinery with a 5 year economic life be financed with debt that will be paid off in five years or less.
B) seasonal peaks in inventory be financed with traded credit.
C) the minimum level of current assets required for the firm's year around operations be financed with permanent sources.
D) all of the above.

Question

Quizplus · Accepted Answer

The principle of maturity matching suggests that each type of asset should be financed by a matching type of financing. Machinery with a 5 year economic life should be financed with debt that will be paid off in five years or less, seasonal peaks in inventory should be financed with traded credit, and the minimum level of current assets required for the firm's year around operations should be financed with permanent sources. Therefore, all the options mentioned in the question should be considered while applying the principle of maturity matching.

The Principle of Maturity Matching Suggests That