orking Capital Management raded Assignment | Read Chapter 16 | Back to Assignmen
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orking Capital Management raded Assignment | Read Chapter 16 | Back to Assignment Due Sunday 07.01.18 at 114 Attempts: Keep the Highest:13 6. Short-term financing Aa Aa Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing. Consider this case: Short-term loans usually have a lower cost than long-term loans. identify whether the preceding statement is true or false. O This statement is false and a disadvantage of short-term financing. O This statement is true and an advantage of short-term financing. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source. Description Short-Term Financing Source A formal, committed line of credit extended by a bank or L other lending institution An obligation backed by collateral, often inventories or accounts roccivableExplanation / Answer
The statement is true and an advantage of short term financing because higher the duration higher the risk so a risk premium for duration is added for long term financing
A formal committed line of credit extended by a bank or other financial institutions is revolving credit agreement.
Revolving credit agreement is seen in credit cards where there is no fixed number of payments.
An obligation backed up by collateral, often inventories or account receivables is Secured Loan.
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