Detailed Answer
(d) The requirement is to identify the factor considered
in determining the appropriate level of working capital. Answer
(d) is correct because the main reason to retain working
capital is to meet the firm’s financial obligations. Therefore, the
amount is determined by offsetting the benefit of current assets
and current liabilities against the probability of technical insolvency.
Answer (a) is incorrect because it is a consideration regarding
long-term financing. Answer (b) is incorrect because it is
a consideration regarding capital structure. Answer (c) is incorrect
because short-term debt is generally less expensive than
long-term debt.