Answer: reduces the need to access capital markets in times of stress.

## Explanation **Correct Answer: C** - reduces the need to access capital markets in times of stress. **Analysis:** Working capital refers to a company's short-term assets and liabilities needed for day-to-day operations. There are different approaches to financing working capital: 1. **Matching Approach**: Financing short-term assets with short-term liabilities 2. **Aggressive Approach**: Financing some long-term assets with short-term debt 3. **Conservative Approach**: Financing some short-term assets with long-term debt or equity **Why option C is correct:** - When companies use long-term debt or equity to finance working capital needs, they create a financial cushion - This conservative approach means they have more permanent capital available - During times of financial stress or market volatility, they don't need to access capital markets as frequently - They have already secured long-term financing, reducing refinancing risk **Why other options are incorrect:** **A**: Using long-term debt or equity typically **increases** the cost of financing working capital, not reduces it. Long-term debt usually has higher interest rates than short-term debt, and equity is the most expensive form of capital due to higher required returns. **B**: Long-term financing does **not** provide the opportunity to borrow only as needed. This is actually a characteristic of short-term financing (like lines of credit) where companies can draw funds as working capital needs fluctuate. Long-term financing involves committing to larger amounts for longer periods. **Key Concepts:** - Working capital management - Conservative vs aggressive financing strategies - Refinancing risk - Cost of capital hierarchy (equity > long-term debt > short-term debt) This question tests understanding of working capital financing strategies and their implications for financial flexibility and risk management.

Author: LeetQuiz .