The correct answer is: D. borrowed
Working capital is the difference between current assets and current liabilities. It is used to finance the day-to-day operations of a business. The fixed proportion of working capital is the amount of working capital that is required to maintain the business’s operations on a day-to-day basis. This amount is typically financed from borrowed capital, such as loans or lines of credit.
The other options are incorrect because:
- Fixed capital is used to finance the acquisition of fixed assets, such as land, buildings, and equipment.
- Variable capital is used to finance the production of goods or services.
- Semi-variable capital is a combination of fixed and variable capital.
Borrowed capital is the most common source of financing for the fixed proportion of working capital because it is a flexible source of funding that can be used to meet the changing needs of the business. Borrowed capital can be obtained from a variety of sources, such as banks, credit unions, and other financial institutions.
There are a number of advantages to using borrowed capital to finance the fixed proportion of working capital. These advantages include:
- Flexibility: Borrowed capital can be used to meet the changing needs of the business.
- Cost-effectiveness: Borrowed capital can be a cost-effective way to finance working capital, especially if the interest rate is low.
- Tax benefits: Interest payments on borrowed capital may be tax-deductible.
However, there are also some disadvantages to using borrowed capital to finance the fixed proportion of working capital. These disadvantages include:
- Risk: Borrowed capital is a source of debt, which means that the business is obligated to repay the loan, plus interest, on a specified schedule. If the business is unable to repay the loan, it may be forced to declare bankruptcy.
- Cost: Borrowed capital can be a costly source of funding, especially if the interest rate is high.
- Dilution of ownership: When a business borrows money, it is essentially taking on debt. This can lead to a dilution of ownership, as the lenders will have a claim on the assets of the business.
Overall, borrowed capital is a common and effective source of financing for the fixed proportion of working capital. However, it is important to weigh the advantages and disadvantages of using borrowed capital before making a decision.