Accounts Receivable May Be Used as a Source of Financing

question 106

Multiple Choice

Accounts receivable may be used as a source of financing by

• A) pledging the receivables as loan collateral.
• B) factoring the receivables to a finance company.
• C) selling securities backed by the receivables.
• D) all of these.

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Definitions:

Flotation Costs

The costs associated with issuing new stocks or bonds, including underwriting fees, legal fees, and registration fees.

Pre-Tax Cost

The cost of an investment or loan without taking taxes into account.

Debt-Equity Ratio

A metric reflecting how company assets are proportionally financed by shareholders' equity and debt.

Cost of Equity

The return that investors expect for investing in a company's equity, considering the risk of the investment.