Question

Which of the following types of financing offers the firm the greatest degree of flexibility?

Bonds

Preferred stock

Short-term lines of credit

Long-term notes payable

Answer 1

Short term lines of credit is the most flexible of the options. It gives the firm ability to draw credit whenever required. Revolving term also allows firm to draw credit even after complete payback of earlier outstanding balances. These draws can be made as and when required by the firm (ofcourse limit on maximum total outstanding balance does stay)

Bonds are not flexible. They have a set indenture and paymnet term and structure that needs to be followed and the company is also governed by SEC rules.

Long term notes payable also have set term and structure. Once borrowed, company will have to utilize the amount. In case of early payback, there are early redmption charges applicable to be padi.

Preferred stock are also not flexible, given they have some features of debt, where dividend payment is certainly to be paid and redemption of these do involve charges.

Hence. Answer is short term line of credit