The principle of self-liquidating debt as a tool for managing firm liquidity, nurul anis nazihah

Temporary sources of financing typically consist of current liabilities the firm incurs on a discretionary basis. Permanent and Temporary Asset Investments: Since each financing source comes with advantages and disadvantages, the financial manager has to decide on the optimal source for the firm.

Measuring Working Capital Efficiency cont. Picture the Problem cont. C the period between the date an invoice is received and the date on which it must be paid. Thus a seasonal increase in inventories prior to Christmas season must be financed with short-term loan or current liability.

However, it is still below the current ratio of 0. If an item is sold on credit, this date is when the accounts receivable is collected. Bank B claims that their interest rate is only 5.

Self-Liquidating Loan

Which bank is charging the lowest APR on a one-year loan? A Little or no default risk B Liquid, easily bought and sold C Interest is not taxable at federal level D Maturities less than 1 year 2 A disadvantage involved in investing in marketable securities is that A this reduces the risk of illiquidity.

D Money Market Mutual Funds. Cash conversion cycle is shorter than the operating cycle as the firm does not have to pay for the items in its inventory for a period equal to the length of the account payable deferral period.