Capital Budgeting Disadvantages

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RAMIREZ, CARLOS MBA FINAL EXAMINATION - ADVANCED FINANCIAL MANAGEMENT Explain the different techniques available to a finance manager in evaluating wise investment decisions. Describe budgeting relative to operations, financial and capital budgeting. Discuss the difference between sticks and bonds as to : Debtor Investor What are the sources of short-term debts and the advantages and disadvantages over long-term debts. Every businesses have its own short-term financial obligations such as funding payroll and managing regular recurring expenses. Most of the time, businesses encounter a problem to fund these commitments because of the gap arises between the date you need to pay your all financial obligations and the times you receive…show more content…
Usually, a bank is involved in a field warehousing arrangement. The inventory of the small business is actually kept in a warehouse secured by the lender or a third party hired by the lender. When some of the inventory is sold by the small business, it is released from the warehouse and the lender is given a receipt and payment for the inventory. It is in this way that the inventory serves as collateral for the loan and the lender receives payment. Rosemary Peavler (2014) Advantages of a Short-term Debt Speed. A short term loan can be obtained much faster than long-term debt. Therefore, if funds are needed in hurry, the firm should look to the short term markets. Flexibility. Long-term debt contains provisions or covenants that constrains the firms future actions. Short-term debt arrangements are generally much less onerous in this regard. Costs. Under the normal conditions, interest costs at the time the funds are obtained will be lower if the firm borrows on a short-term rather than a long-term basis. Disadvantages of Short-term Debt a. Risk. Short-term debt reduces liquidity. The principal must be repaid within a year unlike a long-term debt wherein you have an enough time to gather funds for the repayment of debt. If the company cannot repay the principal with another source, then the company is in danger of going

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