firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on the assumption that both cash receipts and cash payments occur uniformly over the month but in reality receipts are concentrated at the beginning of each month.

Question

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If a firm assumes that cash receipts and payments occur uniformly over the month but in reality, receipts are concentrated at the beginning of the month, it will overstate its peak borrowing needs because it has not taken into account the uneven cash flow pattern. This could lead to the firm taking on unnecessary debt or borrowing more than it needs.

Firm's Peak Borrowing Needs Will Probably Be Overstated If It