Scenario 9-1

question 114

Multiple Choice

Scenario 9-1. Jim is interested in beginning his own small business dealing with the repair and maintenance of household appliances. He has a talent for fixing these types of appliances and has been doing so as a sideline business for several years. He has acquired some of the needed tools; however, a sizeable investment will need to be made in tools and equipment in order for him to repair the appliances that will be brought to his shop for service. He would like part of his competitive advantage to be the capability to fix all appliances, not just one type. Jim has just one small problem--a lack of funds. He comes to you for advice.
-In Scenario 9-1, the primary disadvantages of using equity financing are all but which of the following?

• A) it allows a voice in the management of the business
• B) it provides for a sharing of the profits
• C) it does not constrain cash flow
• D) it shares ownership in the business

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Definitions:

Net 30 Credit Policy

A specific credit term where customers are given 30 days to pay the invoice in full, widely used in business transactions to manage cash flow.

Monthly Interest Rate

The interest rate expressed as a monthly percentage, determining the amount of interest charged or earned per month.

Credit Policy

A set of guidelines that a company follows to determine credit limits and terms for customers, aiming to manage risk and promote sales.

Operating Cycle

The operating cycle is the amount of time it takes for a company to purchase inventory, sell it to customers, and collect cash from the sales.