Long term Capital Funds
Government Assistance
Internal Financing
Short term loans from Banks
Answer is Right!
Answer is Wrong!
The correct answer is: A. Long term Capital Funds
Permanent working capital is the portion of working capital that is required to finance the firm’s normal operations on a continuous basis. It is financed through long-term capital funds, such as equity and debt.
Short-term loans from banks are used to finance temporary increases in working capital, such as seasonal fluctuations in sales. Government assistance is not a common source of financing for working capital. Internal financing, such as retained earnings, can be used to finance 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 are typically used to finance long-term assets, such as plant and equipment. However, they can also be used to finance working capital, if the firm needs to borrow money to cover its short-term needs.
- Short term loans from Banks are loans that are typically repaid within one year. They are often used to finance temporary increases in working capital, such as seasonal fluctuations in sales.
- Government Assistance is financial aid that is provided by the government to businesses. It can be used to finance a variety of expenses, including working capital. However, government assistance is not always available, and it can be difficult to qualify for.
- Internal Financing is financing that is generated from within the firm. It can come from retained earnings, which are profits that are not distributed to shareholders, or from the sale of assets. Internal financing is often the most cost-effective way to finance working capital, but it may not be enough to meet the firm’s needs.