LDP 6.3 Using Projections to Help Determine Appropriate Loan Type Flashcards

1
Q

Permanent sources

A

Include:

  • Increases in net worth
  • increases in liabilities that do not have to be reduced within one year, and
  • reductions in assets that do not have to be replenished right away.
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2
Q

Permanent borrowing causes

A

Those that tie up funds for a period of several years.

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3
Q

Temporary sources

A

Include:

  • reduction in assets that will have to be replenished soon (usually within a year) and
  • an increase in current liabilities that will have to be reduced within the year.
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4
Q

Temporary needs can be met with:

A

1) Seasonal or Revolving Lines of Credit

2) Short-term Loans

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5
Q

Long-term needs can be met with:

A

1) Permanent Working Capital Loans
2) Installment, Term, or Mortgage Loans
3) Term Loans to Provide Long-Term Financing for Reductions in a Company’s Net Worth

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6
Q

Three key considerations when determining the repayment schedule for a long-term loan.

A
  • Useful life of any long-term assets being financed
  • Impact of the debt on financial leverage
  • Availability of cash flow to service the debt
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