Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
11 Cards in this Set
- Front
- Back
|
What is included in a firm's capital structure? What does the capital structure accomplish? |
includes long-term debt and owners' equity
provides long-term financing |
|
|
What is included in a firm's financial structure? |
encompasses capital structure (LT debt & equity) and also current liabilities |
|
|
What are the primary forms of short-term financing? |
-trade accounts payable -accrued accounts payable (i.e. wages, taxes) -short-term notes payable -line of credit, revolving credit and letter of credit -commercial paper -pledging accounts receivable -factoring accounts receivable -inventory secured loans |
|
|
What are the advantages of using trade accounts payable for short-term financing? |
-easy to use (very little legal documentation) -flexible -interest normally not charged -payables are unsecured (no collateral) -discounts often offered for early payment i.e. 2/10, n/30 |
|
|
What are the DISadvantages of using trade accounts payable for short-term financing? |
-require payment in the short term -effective cost is higher if discounts are not taken -financing they provide is use-specific |
|
|
Explain how a firm can use accrued accounts payable for short-term financing. |
results from acquiring cash and other benefits financed by an obligation to be satisfied in the future
the time between when the benefit or cash is received and when the obligation comes due provides short-term financing
-i.e. salaries payable, taxes payable, unearned revenue (i.e. gift cards)
|
|
|
What are the advantages of using accrued accounts payable for short-term financing? |
-easy to use (occurs in normal business)
-flexible
-collateral not required (unsecured) |
|
|
What are the DISadvantages of using accrued accounts payable for short-term financing? |
-require payment in the short term
-some financing is use-specific *many things cannot be financed this way |
|
|
Describe how short-term notes payable provide short-term financing for a firm. |
results from borrowing cash for less than a year
-requires a promissory note
|
|
|
What are the advantages of using short-term notes payable to provide short-term financing? |
-commonly available for credit-worthy firms -flexible -collateral is normally not required (unsecured) -provides cash for various purposes |
|
|
What are the DISadvantages of using short-term notes payable to provide short-term financing? |
-poor credit would raise interest rate and possibly require collateral
-requires payment in the short-term
-would need to refinance if could not pay when due
-compensating balance (when you have to maintain a certain amount of money in the bank) increases effective cost of borrowing |
