Tidewater Distributors is successfully using short-term financing to buy inventory for resale.As sales climb, the managers realise that they must decide what to do with the money.Since you are the financial manager, they ask for your advice.You advise them to first
A) repay the short-term obligations out of the sales revenue.
B) use the money to buy a yacht for the managers.
C) increase all employees' wages.
D) enroll all the salespeople in a sales training course.
E) borrow more money.

Question

Quizplus · Accepted Answer

The best choice would be to repay the short-term obligations out of the sales revenue. This is because the short-term financing was used to buy inventory for resale, so repaying the obligation would mean that the company has sold the inventory and obtained revenue. Using the money for frivolous purchases like a yacht or increasing employee wages or enrolling salespeople in a training course may not necessarily contribute to the financial stability and success of the business. Additionally, borrowing more money may further increase the company's debt and financial risk.

Tidewater Distributors Is Successfully Using Short-Term Financing to Buy Inventory