Chapter 9, Problem 1SSQ

To determine

State the option that is not considered as a primary source of corporate debt financing.

Answer to Problem 1SSQ

d. Receivables.

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Justification for the incorrect options:

Options of a, b and c:

Bonds, notes and leases are the three prime sources of long-term debt financing. Therefore, these are incorrect options.

Justification for the correct option:

Option d:

Receivables refer to the amount that has to be received within a short period from customers upon the sale of goods and services on account, for this reason receivables are not considered as a primary source of debt financing. Hence, it is the correct option.

Conclusion

Therefore, from the above explanation, it is noted that, Option d. Receivables is the correct answer and the other options a, b and c are incorrect.