2. Working Capital Management: Working Capital Investment and Financing Policles investment policy that lies between the two extremes, Changing technologies lead to changes in the oplimal working capital investment policy. Current asset levels vary relative to seasonal and cyclical fuctuations and they rarely drop to rero. current assees are those current assets that a firm must carry even at the trough of its cyeles. current assets are those current assets that fuctuate with seasonal or cyclical variations in sales. Investments in curtent assets must be financed. There are three alternative opproaches for financing current assets. The financing policy that corresponds with the maturities of assets and liabilties. This represeats a(n) financing policy. A(n) , or "self-liquidating," approach is a a firm finances some of its permanent assets with short-term debt. A(n) financing approach means that a firm uses long-term capital to finance all permanent current seasonal needs by storing liquidity in the form of securities. Using short-term debt has both advantages and disadvantages over the use of long-term debe. Because the vield curve is normally , the cost of short-term debt. is generally the cost of iong-term debt. However, short-term debt is risikier to the borrowing firm for two reasons. First, the interest expense of short-term debt the firm into bankruptcy. firm's specific financial conditions will affect the choice, as will the preferences of its managers