Which of the Following Statements Regarding Commercial Paper Is FALSE

question 47

Multiple Choice

Which of the following statements regarding commercial paper is FALSE?

• A)With dealer paper,dealers sell the commercial paper to investors in exchange for a spread (or fee)for their services.
• B)With dealer paper,the spread increases the proceeds that the issuing firm receives,thereby decreasing the effective cost of the paper.
• C)The minimum face value is $25,000,and most commercial paper has a face value of at least $100,000.
• D)With direct paper,the firm sells the security directly to investors.

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Definitions:

External Financing

Funding obtained from sources outside the company, including bank loans, issuance of equity or debt, and other borrowing avenues.

Sales Forecast

An estimation of the sales a company expects to achieve over a certain period in the future.

Additional Funds Needed (AFN)

Those funds required from external sources to increase the firm’s assets to support a sales increase. A sales increase will normally require an increase in assets. However, some of this increase is usually offset by a spontaneous increase in liabilities as well as by earnings retained in the firm. Those funds that are required but not generated internally must be obtained from external sources.

Pro Forma Financial Statements

Financial documents that project a company's future financial performance based on certain assumptions.