Question

A fixed asset should be financed through:

• A. a mix of long and short-term liabilities
• B. None of these
• C. a short-term liability
• D. a long-term liability

Answer 1

The correct option is D

a long-term liability

Fixed assets remains in the business for more than one year. Decision to invest in fixed assets are irrevocable. Therefore these assets should be financed by Fixed Capital. These decisions are called capital budgeting decisions. Management of fixed capital involves allocation of firm's capital to different long term assets.