Tidewater Distributors is successfully using short-term financing to buy inventory for resale. As sales climb, the managers realize that they must decide what to do with the money. Since you are the financial manager, they ask for your advice. You advise them to first
A) repay the short-term obligations out of the sales revenue.
B) use the money to buy a yacht for the managers.
C) increase all employees' wages.
D) enroll all the salespeople in a sales training course.
E) borrow more money.

Question

Quizplus · Accepted Answer

Repaying the short-term obligations should be the first priority as it will help reduce the interest expenses and will help in maintaining the creditworthiness of the company. Using the money for personal benefits or increasing employee wages may not be the best use of the funds in the long run. Enrolling the salespeople in a training course may be beneficial, but it should not be done at the cost of repaying the short-term obligations. Borrowing more money may not be a good option as it will increase the debt burden of the company.

Tidewater Distributors Is Successfully Using Short-Term Financing to Buy Inventory