Chapter 10, Problem 20AA

To determine

To state: To identify the type of financing.

Answer to Problem 20AA

For the given situation, short term financing is appropriate.

Explanation of Solution

Short term financing is a form of debt financing. It is important as it is the base of starting any business if one does not have much funds. The repayment of the loan is generally to be done within 12 months.

Since the inventory will be sold off completely at the end of the month, therefore, the company will earn revenue at the end of each month and they will be able to pay off the debt easily, so the best type of financing used will be short term financing as it has its maturity date in less than a year so the debt can be easily paid off.

Economics Concept Introduction

Introduction: Financing is the procedure through which the companies are granted money to help them use such money in carrying out their businesses.