A firm will use spontaneous funds to the extent possible; however, due to credit terms, contracts with workers, and tax laws there is little flexibility in their usage.

Question

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Spontaneous funds refer to funds generated from the operations of a business such as accounts payable, accounts receivable, and inventory. A firm will generally prefer to use these funds to finance their operations as they do not incur interest or require collateral. However, there may be limitations to their usage due to factors such as credit terms, contracts with workers, and tax laws. Therefore, the statement is true that there is little flexibility in their usage.

A Firm Will Use Spontaneous Funds to the Extent Possible;