A Conservatively Financed Firm Would

question 80

Multiple Choice

A conservatively financed firm would

• A) use long-term financing for all fixed assets and short-term financing for all other assets.
• B) finance a portion of permanent assets and short-term assets with short-term debt.
• C) use equity to finance fixed assets, use long-term debt to finance permanent assets, and use short-term debt to finance fluctuating current assets.
• D) use long-term financing for three items: permanent current assets, fixed assets, and a portion of the short-term fluctuating assets. Then use short-term financing for all other short-term assets.

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Definitions:

Average Variable Cost

The total variable costs (costs that change with the level of output) of a firm divided by the quantity of output produced.

Total Variable Costs

The sum of all costs that vary with the level of output, including costs for raw materials, labor, and other expenses that change with production volume.

Purely Competitive

A purely competitive market is characterized by many buyers and sellers, homogeneous products, and no barriers to entry or exit, leading to price taking behavior by firms.

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, as opposed to accounting profit which only subtracts explicit costs.