Compared to a Line of Credit, a Revolving Credit Agreement

question 71

Multiple Choice

Compared to a line of credit, a revolving credit agreement generally will be

• A) a lower cost, higher risk method of short-term borrowing.
• B) a lower cost, lower risk method of short-term borrowing.
• C) a higher cost, higher risk method of short-term borrowing.
• D) a higher cost, lower risk method of short-term borrowing.

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Definitions:

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period.

Annual Return

The annual return is the percentage change in an investment's value over a year, accounting for dividends, interest, and capital gains.

Present Value Factors

Multipliers used to determine the present value of a future sum of money or stream of cash flows given a specific discount rate.

Hurdle Rate

The minimum return rate on an investment required by an investor or manager, often used in capital budgeting.