The finance manager advises the CEO, "We've got a short-term cash-flow problem. We can draw on our line of credit, and the interest rate is only 2.5%. If we sell our accounts receivable, it'll cost us 3%. I recommend drawing on our line of credit." Which consideration in evaluating financing options does this illustrate?
A) amount of financing
B) external factors
C) term of financing
D) cost of financing

Question

Quizplus · Accepted Answer

This illustrates the consideration of cost of financing, as the finance manager is comparing the interest rate of drawing on the line of credit versus the cost of selling accounts receivable.

The Finance Manager Advises the CEO, "We've Got a Short-Term