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EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Question
Chapter 27, Problem 5P
Summary Introduction
To discuss: The reason behind the companies choosing to finance the permanent working capital with short-term debt.
Introduction:
Permanent working capital is one of the types of working capital where the firm has to invest in short-term assets; this helps the firm in continuous operations. The matching concepts state that the firm must finance this type of working capital investment with long-term sources of funds. This is because this source will have low transaction cost compared to the short term sources of funds.
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Chapter 27 Solutions
EBK CORPORATE FINANCE
Ch. 27.1 - Prob. 1CCCh. 27.1 - What is the effect of seasonalities on short-term...Ch. 27.2 - Prob. 1CCCh. 27.2 - What is the difference between temporary and...Ch. 27.3 - Prob. 1CCCh. 27.3 - Describe common loan stipulations and fees.Ch. 27.4 - What is commercial paper?Ch. 27.4 - How is interest paid on commercial paper?Ch. 27.5 - Prob. 1CCCh. 27.5 - What is the difference between a floating lien and...
Ch. 27 - Prob. 1PCh. 27 - Sailboats Etc. is a retail company specializing in...Ch. 27 - What is the difference between permanent working...Ch. 27 - Quarterly working capital levels for your firm for...Ch. 27 - Prob. 5PCh. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8PCh. 27 - Which of the following one-year 1000 bank loans...Ch. 27 - The Needy Corporation borrowed 10,000 from Bank...Ch. 27 - Prob. 11PCh. 27 - Prob. 12PCh. 27 - Prob. 13PCh. 27 - The Signet Corporation has issued four-month...Ch. 27 - Prob. 15PCh. 27 - Prob. 16PCh. 27 - Prob. 17PCh. 27 - Prob. 18P
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- why an increase in cost of debt will increase cost of capital associated with business risk and financial risk?arrow_forwardWhat effect would a decreased cost of capital have on a firm's future investments?arrow_forwardIs capital rationing a must for companies in order to stay relevant?arrow_forward
- Critically discuss over-investment and under-investment problems due to debt usage. What kinds of capital structures could prevent such problems?arrow_forwardWhat is off-balance-sheet financing? Why might a companybe interested in using off-balance-sheet financing?arrow_forwardWhat are the likely effects of a policy in which a company fails to adjust for difference in risk when estimating the cost of capital for their various projects?arrow_forward
- Why do come companies prefer to use discounting in their capital investment decisions? What is a risk associated with this discounting model?arrow_forwardWhy do analysts need to consider different factors when evaluating a company’s ability to repay short-term versus long-term debt?arrow_forwardWhat are the Factors That Complicate Capital Investment Analysis? What is Capital Rationing?arrow_forward
- How does a firm's use of short-term debt as opposed to long-term debt subject the firm to a greater risk of illiquidity? Give tangible examplesarrow_forwardWhat is net operating working capital? Why does it exclude mostshort-term investments and notes payable?arrow_forwardwhat happens to the cost of debt if the pourcentage of debt gets lower in the capital structurearrow_forward
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