Question

Permanent working capital is generally financed through _________.

• A. long term capital funds
• B. government assistance
• C. internal financing
• D. short term loans from banks

Answer 1

Answer: (A)

• Every business needs funds to finance its assets and activities. Investment is required to be made in fixed assets and current assets.
  
• Fixed assets are those which remains in the business for more than one year, usually for much longer e.g., plant and machinery, furniture and fixture, land and building, vehicles etc.These assets can also be termed as permanent working capital.
  
• Decision to invest in fixed assets must be taken very carefully as the investment is usually quite large.
  
• It must be financed through long-term sources of capital such as equity or preference shares, debentures, long-term loans and retained earnings of the business. Fixed Assets should never be financed through short-term sources.