The faster a firm grows, the greater is the shortfall in cash and the firm might borrow funds from the bank on a revolving credit arrangement.Why?
A)Most of the cash outflows for expenses occur before the firm receives the cash inflows from a sale.
B)The lag between cash outflows and cash inflows can lead to cash shortfalls.
C)Cash disbursements to employees and suppliers precede cash collections from customers.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

All of the given options contribute to the shortfall in cash for a fast-growing firm. Expenses such as salaries, rent, and supplies have to be paid before the firm receives cash inflows from the sale of goods or services. This time lag between cash outflows and inflows can lead to cash shortages that need to be managed through borrowing. Additionally, payments to employees and suppliers precede cash collections from customers, further exacerbating the cash shortfall.

The Faster a Firm Grows, the Greater Is the Shortfall