Fundamentals of Financial Management Concise
Quiz 15: Working Capital Management
If a Profitable Firm Finds That It Simply Must "Stretch
If a profitable firm finds that it simply must "stretch" its accounts payable,then this suggests that it is undercapitalized,i.e. ,that it needs more working capital to support its operations.
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If one of your firm's customers is "stretching" its accounts payable,this may be a nuisance but it does not represent a real financial cost to your firm as long as the customer periodically pays off its entire balance.
The prime rate charged by big money center banks at any one time is likely to vary greatly (for example,as much as 2 to 4 percentage points)across banks due to banks' ability to differentiate themselves and because different banks operate in different parts of the country.
A revolving credit agreement is a formal line of credit.The firm must generally pay a fee on the unused balance of the committed funds to compensate the bank for the commitment to extend those funds.
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