FIN%204260%20Chap_16_SLIDES

FIN%204260%20Chap_16_SLIDES - Part V S/T Investment & 1...

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Part V – S/T Investment & Financing Chapter 16 Short-Term Financing 1
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Ch-16 Short-Term Financing 2 Firms require some level of permanent working capital. Some of the working capital is supported by spontaneous financing from current liabilities
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Short-Term Financing 3 Daily ending cash positions can be both positive and negative. When negative, external sources of short-term financing become an important part of a firm’s liquidity reserve. Firm’s can borrow: From the bank In the money market
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Short-Term Financing – Banks 4 One option for short-term financing is arranging a credit facility with the bank. Important in the negotiation is: Amount Term and Structure Rate / Effective Rate Fees (commitment, non-usage, unused portion, etc.) Compensating Balances
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S/T Financing 5 Based on the terms and structure, the effective rate of various short-term borrowing options can be compared and the most cost-effective option chosen. We’ll start by looking at a traditional bank Line of Credit.
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Example 6 A firm has been offered the following credit facility by its bank:
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FIN%204260%20Chap_16_SLIDES - Part V S/T Investment & 1...

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