If a Firm Has Set Up a Revolving Credit Agreement

question 12

True/False

If a firm has set up a revolving credit agreement with a bank, the risk to the firm of being unable to obtain funds when needed is lower than if it had an informal line of credit.

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Definitions:

Financing Structure

The mix of debt and equity that a company uses to finance its operations and growth.

Par Value

The face value of a bond or stock as specified by the corporate charter, which is the minimum amount per share that shareholders will receive in the event of the corporation's liquidation.

Market Rate

The current price or cost of goods, services, or commodities as determined by the market supply and demand.

Maturity

The date on which a financial obligation must be repaid in full or the point at which an investment reaches its full value.