Which form of borrowing is the most suitable to cover a cash flow problem of a business in the short term?YOUR ANSWERYour AnswerA mortgage.An overdraft.The sale of an existing asset.A loan.
Question
Which form of borrowing is the most suitable to cover a cash flow problem of a business in the short term?YOUR ANSWERYour AnswerA mortgage.An overdraft.The sale of an existing asset.A loan.
Solution
An overdraft is the most suitable form of borrowing to cover a cash flow problem of a business in the short term. This is because an overdraft allows a business to temporarily expend more money than it has in its account, providing immediate access to funds. This can be particularly useful for dealing with unexpected expenses or short-term cash flow problems. It's typically easier and quicker to arrange than a business loan or mortgage, and there's no fixed repayment schedule. However, interest rates can be high and the facility can be withdrawn at any time by the bank.
Similar Questions
Identify which of the following is NOT a strategy for managing cash flow.*1 pointEnsuring that the business has more long-term assets such as land and buildingsArranging readily available short-term loans and a bank overdraftHiring accounts receivable staff to ensure that customers are paying the full amount on timeKeeping track of money that is owed to the business and chasing up outstanding debts
answer each part separately.a) To finance a certain project, a company must borrow funds at 10 percent interest. Howshould it treat interest payments when it analyzes the project’s cash flows? Explain.b) What are the tax consequences of selling an investment asset for more than its book value?Does this have an effect on project cash flows? What is the effect if the asset is sold for lessthan its book value? Explain.c) Why must incremental after-tax cash flows rather than total cash flows be evaluated inproject analysis? Explain.d) Differentiate between sunk costs and opportunity costs. Which of these costs should beincluded in incremental cash flows, and which should be excluded? Explain.e) Why is it important to consider cannibalization in situations where a company isconsidering adding substitute products to its main product line? Explain.
Which problem would be best addressed by a business bank?A.A person with a poor credit history needs a short-term loan to pay a medical bill.B.A corporation needs help with cash management for its large staff.C.A college graduate needs to open a checking account with the lowest fees available.D.A couple needs to get a mortgage loan to buy a home after moving to a new city.
Which of the following is an example of a cash outflow for a financing activity?Multiple ChoicePayment of cash for suppliesPayment of cash for the purchase of equipmentPayment of cash for treasury stockPayment of cash for interest expense
Which of the following is an example of a financial resource for a business?Bank overdraftMachineryStock
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