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CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management

A firm has current assets of Rs 10,00,000, of which Rs 4,00,000 is permanent. Fixed assets are Rs 12,00,000. Which statement describes an aggressive financing policy?

An aggressive policy finances part of the permanent current assets with short-term funds. This lowers financing cost but raises liquidity and refinancing risk. Using long-term funds for temporary needs is conservative, not aggressive.

  1. AFinancing permanent current assets with long-term funds only
  2. BFinancing all current assets and fixed assets with equity only
  3. CFinancing part of permanent current assets with short-term fundsCorrect
  4. DFinancing temporary current assets with long-term funds

Explanation

An aggressive policy uses short-term funds even for part of permanent current assets, raising risk and profitability. Options using long-term funds for temporary needs describe a conservative policy; matching finances permanent needs with long-term funds.

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