4) A manufacturer of snowshoes has received an usually large contract to deliver

Question

4) A manufacturer of snowshoes has received an usually large contract to deliver snowshoes to a new and very creditworthy customer. The business will need an additional loan to fund its production for this contract. It will take approximately three months to manufacture the inventory to fulfill this contract. Which of the following best describes the probable duration and repayment source if the lender decides to make this additional loan?

A) the duratio will be three months plus the collection period and the repayment source is profit on the contract

B) the duration will be several operating cycles over more than one year and the repayment source is cash flow from profitable operations

C) The duration will be three months plus the collection period and the repayment source is collection of the account receivable from the new customer

D) The duration will be three months and the repayment source is collection of accounts receivable from other customers

Explanation / Answer

Answer will be C) The duration will be three months plus the collection period and the repayment source is collection of the account receivable from the new customer.

Duration: As manufacture will take three months to manufacture the inventory to fulfill the contract. in addition time taken to collect the sales revenue from customer

Repayment source will be collected amount of the receivable from customer.

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