The correct answer is: A. Long-term capital funds
Permanent working capital is the portion of working capital that is required to support the firm’s ongoing operations. It is typically financed through long-term capital funds, such as debt or equity.
Short-term loans from banks are typically used to finance temporary working capital needs, such as seasonal fluctuations in sales. Government assistance may be available to businesses that are struggling to finance their working capital needs, but it is not a common source of financing for permanent working capital. Internal financing, such as retained earnings, can be used to finance permanent working capital, but it is often not enough to meet the firm’s needs.
Here is a more detailed explanation of each option:
- Long-term capital funds are funds that are borrowed or raised for a period of more than one year. They can be used to finance a variety of assets, including permanent working capital. Long-term capital funds can be obtained through a variety of sources, including debt, equity, and government assistance.
- Short-term loans from banks are loans that are typically repaid within one year. They are often used to finance temporary working capital needs, such as seasonal fluctuations in sales. Short-term loans can be secured or unsecured. Secured loans are backed by collateral, such as inventory or accounts receivable. Unsecured loans are not backed by collateral.
- Government assistance may be available to businesses that are struggling to finance their working capital needs. The type of assistance that is available varies depending on the government and the specific circumstances of the business. Government assistance can take a variety of forms, such as grants, loans, and tax breaks.
- Internal financing refers to funds that are generated from within the business. Retained earnings are the most common form of internal financing. Retained earnings are the profits that a business keeps after paying taxes and dividends. Retained earnings can be used to finance a variety of activities, including permanent working capital.