A Firm Which Uses the Aggressive Financing Strategy Plans to Purchase

question 165

Multiple Choice

A firm which uses the aggressive financing strategy plans to purchase raw materials in large quantities to take price discounts. The firm will finance the purchase with a long-term loan. The most likely consequence of this action is ________.

• A) a decrease in the current ratio
• B) an increase in net working capital
• C) an increase in risk of insolvency
• D) a decrease in net working capital

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Definitions:

American Call

An option contract that gives the holder the right to buy a specific asset at a set price anytime before the expiration date.

Expiration Date

The predefined date after which an option or other financial contract becomes invalid and the right to exercise it ceases.

Conversion Premium

The additional amount above the par value that an investor pays to convert a convertible security (like a bond) into a predetermined number of shares of common stock.

Issuance

Issuance refers to the process of offering new or existing securities for sale to investors, typically as a means to raise capital for the issuer.