Compared to a line of credit, a revolving credit agreement will be ________ for a firm.
A) a lower cost, higher risk method of short-term borrowing
B) a lower cost, lower risk method of short-term borrowing
C) a higher cost, higher risk method of short-term borrowing
D) a higher cost, lower risk method of short-term borrowing

Question

Quizplus · Accepted Answer

A revolving credit agreement typically involves higher costs due to commitment fees and potentially higher interest rates compared to a line of credit. However, it offers lower risk for the firm because it guarantees access to funds up to the agreed limit at any time during the term of the agreement, ensuring financial flexibility.

Compared to a Line of Credit, a Revolving Credit Agreement