Effect of Taxes on Cost of Capital
Taxes significantly impact the weighted average cost of capital (WACC) of a company.... Read More
The objectives of a short-term borrowing strategy include the following:
Several factors will influence a company’s short-term borrowing strategies:
Question
Which of the following factors will least likely influence a company’s short-term borrowing strategies?
- Size and creditworthiness.
- Legal and regulatory considerations.
- Capacity to handle sudden cash needs.
Solution
The correct answer is C.
Ensuring that there is the capacity to handle sudden cash needs is an objective of a short-term borrowing strategy.
A is incorrect. Size and creditworthiness is a factor influencing a company’s short-term borrowing strategy. A company’s size influences the options at its disposal, while its creditworthiness influences the interest rate it will pay.
B is incorrect. Legal and regulatory considerations influence a company’s short-term borrowing strategy since there may be regulatory restrictions on the amount a company can borrow.