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. This statement is true and an advantage of short-term financing.   This statement is false and a disadvantage 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 Continually recurring short-term liabilities commonly generated from unpaid wages or taxes.      An obligation backed by collateral, often inventories or accounts receivable.

Which of the following statements relating to working capital financing is not correct?     A. A conservative policy uses long-term debt to finance non-current assets.     B. Short-term debt is cheaper than long-term debt.           C. An aggressive policy uses long-term debt to finance fluctuating current assets.         D.  Long-term debt is less risky that short-term debt.

Lluvia Manufacturing and Paraguas Products both seek funding at the lowest possible cost. Lluvia would prefer the flexibility of floating-rate borrowing, while Paraguas wants the security of fixed-rate borrowing. Lluvia is the more creditworthy company. They face the following rate structure. Lluvia, with the better credit rating, has lower borrowing costs in both types of borrowing. Lluvia wants floating-rate debt, so it could borrow at LIBOR+1.000%. However, it could borrow fixed at 8.500% and swap for floating-rate debt. Paraguas wants fixed-rate debt, so it could borrow fixed at 12.500%. However, it could borrow floating at LIBOR+2.000% and swap for fixed-rate debt. What should they do? (LIBOR is 5.500%.)   Lluvia's comparative advantage is % (round 3 decimals)   Paraguas's net interest after a swap with Lluvia is (round 3 decimals)   Lluvia's savings on borrowing versus net swap is (round 3 decimals)   Paraguas's savings on borrowing versus net swap is (round 3 decimals)

Which of the following statements is most correct? Group of answer choices The optimal capital structure maximizes the WACC. None of these. Increasing the amount of debt in a firm's capital structure is likely to increase the cost of both debt and equity financing. If the after-tax cost of equity financing exceeds the after-tax cost of debt financing, firms are always able to reduce their WACC by increasing the amount of debt in their capital structure.

If we hold all other factors the same, an increase in interest rates will: a. Decrease the present value of a stream of constant payments we expect to receive. b. Increase the present value of a stream of constant payments we expect to receive. c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account. d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.

Please Make this notes clearer and perfectly written. Here is my notes: At times companies engage in repurchase agreements; are from the perspective of the borrowers. they borrow money to finance themselves short term and the value of the money they borrow whatever that value is they agreed to pay the lenders when they return the money with a higher value even if they borrow low and pay high and that difference is their cost of funding repurchase agreements repurchase agreements are always collateralized with high quality paper government securities it can also be a commodity like precious metals gold or silver repos besides the collateralization. The federal funds that's an important take away that one member of the treasury reserve system lends to another short term loans that one member of the treasury reserve system lends to another The banks have surplus reserves with our central bank some are in deficit the who the ones who are in surplus lend to the ones who are in deficit…

Which of the following statements is NOT CORRECT?  A. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing   B. A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year   C. The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans.   D. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.

The optimal capital structure for firms in stable industries can reasonably contain ________________ than firms in volatile industries. Select one: A. more debt B. less debt C. an equal amount of debt D. There is no relationship between the cyclical nature of an industry and optimal capital structure

Which statement is most correct? *     A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC.   B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC.   C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC.   D. Statements a and c are correct.   E. None of the above

In a CDO structure, when economic condition turns out to be better than previously expected, the cash flow from the pool of underlying assets (such as mortgage loans or consumer loans) is more than the level reflected in the original(previous) pricing of the tranches. In this scenario, which tranche’ rate of return will turn out to be higher than others? → (1) Senior tranche; (2) Mezzanine tranche; (3) Junior tranche;