Asked by Ericka Pearce on Apr 25, 2024
Verified
Short-term loans are generally used to:
A) finance permanent additions to working capital.
B) finance additions to fixed assets.
C) finance seasonal working-capital requirements.
D) retire equity, thus changing a firm's capital structure.
Short-Term Loans
Short-term loans are financial obligations due for repayment within a year, often utilized for immediate cash flow needs.
Fixed Assets
Tangible or intangible items owned by a business that are used over a long period of time for the operation of the business, such as buildings, machinery, or equipment.
Working Capital
The disparity between an organization's immediate assets and liabilities, revealing its short-term fiscal stability and operational effectiveness.
- Acquire knowledge on the concepts of managing working capital along with its constituents.
- Evaluate the concessions involved in short-term versus long-term funding decisions.
Verified Answer
CM
Chandler Mertz7 days ago
Final Answer :
C
Explanation :
Short-term loans are typically used to finance seasonal working-capital requirements, such as purchasing inventory to meet demand during peak sales periods. They are not typically used for financing permanent additions to working capital or fixed assets, and do not involve retiring equity to change a firm's capital structure.
Learning Objectives
- Acquire knowledge on the concepts of managing working capital along with its constituents.
- Evaluate the concessions involved in short-term versus long-term funding decisions.