Which of the Following Statements Best Describes Working Capital Financing

question 64

Multiple Choice

Which of the following statements best describes working capital financing policy?

• A) Net working capital may be defined as current assets minus current liabilities, and an increase in the current ratio automatically indicates that net working capital has increased.
• B) Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks of using short-term financing.
• C) If a company follows a policy of "matching maturities," this means that it matches its use of common shares with its use of long-term debt as opposed to short-term debt.

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Definitions:

Voting Shares

Stocks that provide the owner with the ability to influence corporate decisions and elect the board of directors through voting.

Patent

A legal right granted by the government to an inventor, giving the inventor exclusive rights to use, sell, or manufacture the invention for a certain period of time.

Trademark

A recognizable sign, design, or expression which identifies products or services of a particular source from those of others.

Goodwill

An intangible asset that represents the excess value paid for a company over its net assets at the time of acquisition, reflecting attributes like brand reputation, customer relations, and intellectual property.