A Credit Crunch Refers to a

question 4

Multiple Choice

A credit crunch refers to a

• A)sharp rise in interest rates that banks charge on business loans.
• B)sharp rise in interest rates that banks charge on consumer loans.
• C)decline in the willingness of households and firms to borrow from banks.
• D)reduction in borrowers' ability to obtain credit at prevailing interest rates.

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Definitions:

External Financing

Funds a business obtains from outside the company, including loans, equity investments, and other financial instruments.

After-Tax Cost

The net cost of an expense or investment after the effects of taxes have been accounted for.

Net Present Value

This refers to the calculation used to determine the current value of a series of future cash flows by applying a discount rate.

Initial Cash Outlay

The upfront amount of cash needed to initiate a project or investment, including acquisition costs and other initial expenses.