Compensating Balances Represent Unfair Hidden Costs of Borrowing

question 108

True/False

Compensating balances represent unfair hidden costs of borrowing.

---

Definitions:

Discount Rates

Interest rates used to determine the present value of future cash flows, important in finance for valuation and risk assessment purposes.

Cost Of Capital

The earnings rate a business must achieve on its investments to keep its market value stable and entice capital.

Debt And Equity

The two primary ways a company finances its operations, through borrowing money (debt) and selling shares (equity).

Use Of Funds

The detailed explanation of how a business or individual plans to allocate capital or revenue toward specific expenditures.