A Firm Constructing a New Manufacturing Plant and Financing It

question 40

True/False

A firm constructing a new manufacturing plant and financing it with short-term loans,which are scheduled to be converted to first mortgage bonds when the plant is completed,would want to separate the construction loan from its current liabilities associated with working capital when calculating net working capital.

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Definitions:

Bankers' Acceptances

Short-term debt instruments issued by a company that is guaranteed by a commercial bank.

Eurodollars

Deposits held in U.S. dollars at banks outside the United States, often used in international lending.

Repos

Short for repurchase agreements, a form of short-term borrowing for dealers in government securities.

Federal Funds

Funds in a bank’s reserve account at the Federal Reserve Bank.