Most of this class focused on the long-term outlook of the firm. Given the nature of corporate financing and investment decisions, that focus on long-term operations is appropriate. In periods of rapid change where long-term outlooks are uncertain or in flux, a focus on short-term decision-making is critical.
The most common rule of thumb for short-term operations is to finance long-term needs for capital with long-term sources and short term needs with short-term sources. Given that rules of thumb are for normal operations, for the following situations identify when it would be appropriate to finance with each of the following methods:
- Short-term needs with long-term assets
- Long-term needs with short-term assets
- Seasonal variations with short-term assets