ch16 - CHAPTER16 policies A/P(tradecredit Commercialpaper...

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    16-1 CHAPTER 16 Financing Current Assets Working capital financing  policies A/P (trade credit) Commercial paper S-T bank loans
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    16-2 Working capital financing policies Moderate – Match the maturity of the  assets with the maturity of the financing. Aggressive – Use short-term financing  to finance permanent assets. Conservative – Use permanent capital  for permanent assets and temporary  assets.
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    16-3 Moderate financing policy Years Lower dashed line would be more aggressive. $ Perm C.A. Fixed Assets Temp. C.A. S-T Loans L-T Fin: Stock, Bonds, Spon. C.L.
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    16-4 Conservative financing policy $ Years Perm C.A. Fixed Assets Marketable securities Zero S-T Debt L-T Fin: Stock, Bonds, Spon. C.L.
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    16-5 Short-term credit Any debt scheduled for repayment within one  year. Major sources of short-term credit Accounts payable (trade credit) Bank loans Commercial loans Accruals From the firm’s perspective, S-T credit is  more risky than L-T debt. Always a required payment around the corner. May have trouble rolling over loans.
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    16-6 Advantages and disadvantages of  using short-term financing Advantages Speed Flexibility Lower cost than long-term debt Disadvantages Fluctuating interest expense Firm may be at risk of default as a result of  temporary economic conditions
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    16-7 Accrued liabilities Continually recurring short-term  liabilities, such as accrued wages or  taxes.
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  • Spring '10
  • jones
  • Finance, trade credit, Spon

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