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RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience:  MBA, CPA
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25) Kuznets Rental Center requires $1,000,000 in financing

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25) Kuznets Rental Center requires $1,000,000 in financing over the next two years. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, which of the following statements is true?
A. Kuznets will probably pay more under the short-term financing plan.
B. Kuznets will definitely end up paying more under the long-term financing plan.
C. Kuznets will probably pay less under the short-term financing plan.
D. Kuznets will definitely end up paying less under the long-term financing plan.

26) Normally, permanent current assets should be financed by
A. borrowed funds.
B. long-term funds.
C. internally generated funds.
D. short-term funds.

27) A conservatively financed firm would
A. use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all other short-term assets
B. finance a portion of permanent assets and short-term assets with short-term debt.
C. use long-term financing for all fixed assets and short-term financing for all other assets.
D. use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets.
Submitted: 6 years ago.
Category: Finance
Expert:  RD replied 6 years ago.

25) Kuznets Rental Center requires $1,000,000 in financing over the next two years. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, which of the following statements is true? A. Kuznets will probably pay more under the short-term financing plan. B. Kuznets will definitely end up paying more under the long-term financing plan. C. Kuznets will probably pay less under the short-term financing plan. D. Kuznets will definitely end up paying less under the long-term financing plan.

 

26) Normally, permanent current assets should be financed by A. borrowed funds. B. long-term funds C. internally generated funds. D. short-term funds.

 

27) A conservatively financed firm would A. use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all other short-term assets B. finance a portion of permanent assets and short-term assets with short-term debt. C. use long-term financing for all fixed assets and short-term financing for all other assets. D. use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets.

RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience: MBA, CPA
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