Firms pay a low interest rate on spontaneous liabilities so these funds are its cheapest source of capital.Consequently, the firm should make arrangements with its suppliers to use as much of this credit as possible.

Question

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Spontaneous liabilities, like accounts payable, may not always be the cheapest source of capital due to potential trade-offs such as loss of supplier goodwill, discounts for early payment, or strained supplier relationships.

Firms Pay a Low Interest Rate on Spontaneous Liabilities So