{"id":214666,"date":"2025-05-15T07:32:41","date_gmt":"2025-05-15T07:32:41","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=214666"},"modified":"2025-05-15T07:32:43","modified_gmt":"2025-05-15T07:32:43","slug":"which-of-the-following-is-the-simplest-form-of-financing-a-business-could-use-to-address-very-short-term-cash-needs","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/15\/which-of-the-following-is-the-simplest-form-of-financing-a-business-could-use-to-address-very-short-term-cash-needs\/","title":{"rendered":"Which of the following is the simplest form of financing a business could use to address very short-term cash needs"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Which of the following is the simplest form of financing a business could use to address very short-term cash needs?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a) Issue new bonds<br>b) Sale of treasury stock<br>c) Bank loan<br>d) Commercial paper<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-1-color\">The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Correct Answer: d) Commercial paper<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Explanation:<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">When a business needs to address <strong>very short-term cash needs<\/strong>, the <strong>simplest and most efficient<\/strong> form of financing it can use is <strong>commercial paper<\/strong>. Commercial paper is a type of <strong>unsecured, short-term debt instrument<\/strong> issued by corporations to finance temporary cash flow needs such as payroll, accounts payable, or inventory purchases. It typically has a maturity of <strong>1 to 270 days<\/strong>, making it an ideal option for short-term liquidity needs.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Commercial paper is usually issued at a <strong>discount<\/strong> to face value and does not pay interest in the traditional sense. Instead, the investor is paid the face value at maturity, and the difference between the purchase price and face value represents the interest earned. It is a <strong>direct form of borrowing from investors<\/strong> and does not require the company to go through extensive procedures or offer collateral.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Let\u2019s compare this with the other options:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>a) Issue new bonds<\/strong> \u2013 This is a long-term financing option. Issuing bonds is a complex process that involves regulatory approval, underwriting, and often credit ratings. It is <strong>not suitable for short-term needs<\/strong> because it takes time and incurs significant issuance costs.<\/li>\n\n\n\n<li><strong>b) Sale of treasury stock<\/strong> \u2013 Selling treasury stock (previously repurchased shares) can provide funds, but it is not a regular or simple method to raise quick capital. It can also dilute ownership and affect the company\u2019s stock price. It&#8217;s more of a <strong>strategic decision<\/strong> than a short-term liquidity tool.<\/li>\n\n\n\n<li><strong>c) Bank loan<\/strong> \u2013 While bank loans can be short-term, the process of applying, approval, and documentation is often <strong>more time-consuming<\/strong> than issuing commercial paper, especially for companies with high credit ratings who can easily access the commercial paper market.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">In summary, <strong>commercial paper<\/strong> is the <strong>most direct, cost-effective, and simplest<\/strong> form of financing for meeting very <strong>short-term cash needs<\/strong> for companies with strong creditworthiness.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Which of the following is the simplest form of financing a business could use to address very short-term cash needs? a) Issue new bondsb) Sale of treasury stockc) Bank loand) Commercial paper The Correct Answer and Explanation is: Correct Answer: d) Commercial paper Explanation: When a business needs to address very short-term cash needs, the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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