Fm22 24 - seasonal demands with permanent capital This position is a very safe one Therefore an aggressive financing policy uses the greatest

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Mini Case: 22 - 24 seasonal demands with permanent capital. This position is a very safe one. Therefore, an aggressive financing policy uses the greatest amount of short-term debt, while the conservative policy uses the least. The maturity matching policy falls between these two policies. r. What are the advantages and disadvantages of using short-term debt as a source of financing? Answer: Although using short-term credit is generally riskier than using long-term credit, short-term credit does have some significant advantages. A short-term loan can be obtained much faster than long-term credit. Lenders insist on a more thorough financial examination before extending long-term credit. If a firm’s needs for funds are seasonal or cyclical, it may not want to commit to long-term debt because: (1) flotation costs are generally high for long-term debt but trivial for short-term debt; (2) prepayment penalties with long-term debt can be expensive. Short-term debt
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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