1. Financing current assets What are the current asset financing strategies that firms adopt? Firms manage a variety of current assets. Permanent current assets are needed for the firm to maintain its business, and they will be carried even through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Each firm must devise a financing strategy that best fits its business situation and best manages its risk. Use the following table to identify the different current asset financing policies. Description Financing Policy All fixed assets, the permanent portion of current assets, and a portion of the temporary component of current assets are covered by long-term debt. The remaining portion of temporary current assets is covered by short-term financing. All fixed assets and the permanent portion of current assets are financed with long-term capital, and temporary current assets are financed with short-term loans. Some portion of fixed assets and the permanent portion of current assets are financed with long-term capital, and all temporary needs of current assets and the remaining portion of fixed assets are financed with short-term loans. Suppose a firm occasionally faces demand for short-term credit but usually has an excess of short-term capital to finance current assets. Which approach is the firm following? O Conservative approach O Maturity matching approach O Aggressive approach Which usually costs less-short-term or long-term debt? O Long-term debt Short-term debt