BEC MC question at Becker

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  • #196053
    NinaSun
    Member

    Becker Question –

    The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm’s maturing obligations is the policy that finances:

    a. Fluctuating current assets with short-term debt

    b. Permanent current assets with long-term debt

    c. Permanent current assets with short-term debt

    d. Fluctuating current assets with long-term debt

    The answer is c. My question is why “a” does not have the greatest risk, as fluctuating current asset provides more uncertainty and more risky. When short-term debt becomes mature, company may not have money to repay debt.

    AUD-74,75 11/2014
    REG-80 04/2015
    FAR-74, 91 11/2015
    BEC-79 08/2015

Viewing 3 replies - 1 through 3 (of 3 total)
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  • #686698
    spatel15
    Participant

    Fluctuating current assets are like short-term surprises/buildups. Like come christmas time, it wouldn't be heinous to see ToysRUS take some short term financing to build up their inventory. Ya know they'll convert most of it and likely to cover their short-term obligation used to finance that build up.

    #686699
    spatel15
    Participant

    Sorry double post.

    #686700
    NinaSun
    Member

    Thank you @spatel15. Great explanation!

    AUD-74,75 11/2014
    REG-80 04/2015
    FAR-74, 91 11/2015
    BEC-79 08/2015

Viewing 3 replies - 1 through 3 (of 3 total)
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