Week 4 Debt Financing Jeena Cao

Week 4 Debt Financing Jeena Cao - 1 Running head: DEDT...

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Running head: DEDT FINANCING Debt Financing Jeena Cao ACC/543 March 6, 2011 Tom Benscoter 1
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Debt Financing The purpose of this memorandum is to analyze the implications of the financial decision of establishing a line of credit from a local bank to invest in a new technological infrastructure. To do that, an explanation of the negotiable instrument likely to be used in this proposed financing transaction will be provide. Moreover, a comparison of the primary and secondary liabilities of the parties to that negotiable instrument and an evaluation of the components of secured transaction that the bank has proposed are included. Negotiable Instrument Likely to be Used The company is looking to establish a line of credit from a local bank to finance the capital to invest in a new technological infrastructure. With a line of credit, a draft would the negotiable instrument like to be used. A draft involves three parties, the drawer, the drawee, and the payee. A drawer writes an unconditional order to order the drawee to pay money to the payee. In this case, the company is the drawer who orders the bank, the drawee, to pay the new technological infrastructure’s company, the payee. In order for the drawee to be liable, the drawee must accept the draft by writing accepted on it. The draft could be a time draft, which means it can be pay at a time in the future or a sight draft, which means its payable on sight. A draft also can be both a time and a sight draft. This type of "draft would provide that it is payable at a stated time after sight” (Cheeseman, 2007, p. 329). With financing, the promissory note could also be the negotiable instrument likely to be
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This note was uploaded on 06/25/2011 for the course ACC 280 280 taught by Professor Lindaking during the Spring '10 term at University of Phoenix.

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Week 4 Debt Financing Jeena Cao - 1 Running head: DEDT...

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