Which Statement Best Describes Working Capital Financing Policy

question 105

Multiple Choice

Which statement 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:

Profit Center

A department or unit within an organization that is responsible for generating revenue and is evaluated based on its profitability.

Service Department

A segment within a business that supports other departments by providing internal services or activities.

Fixed Costs

Expenses that do not vary in total despite fluctuations in the amount of work or volume of production.

Actual Services

The genuine and realized services provided by a company, as opposed to planned or expected services.