Question

Which of the following statements is FALSE? Select one: a. With a discount loan, the borrower is required to pay the interest at the end of the loan period. b. A bridge loan is another type of short-term bank loan that is often used to "bridge the gap" until a firm can arrange for long-term financing. c. Bridge loans are often quoted as discount loans with fixed interest rates. d. After a natural disaster, lenders may provide businesses with short-term loans to serve as bridges until they receive insurance payments or long-term disaster relief.

Which of the following statements is FALSE?

Select one:

a. Inventory helps minimize the risk that the firm will not be able to obtain an input it needs for production.

b. Firms may hold inventory because factors such as seasonality in demand mean that customer purchases do not perfectly match the most efficient production cycle.

c. Because excessive inventory uses cash, efficient management of inventory increases firm value.

d. If a firm holds too much inventory, stock-outs, the situation when a firm runs out of product, may occur, leading to lost sales.

Clear my choice

Answer 1

a. With a discount loan, the borrower is required to pay the interest at the end of the loan period

The above statement is False, because, under discount loan, borrower gets an amount that is already reduced by Interest and other charges. Hence, no Interest is needed to be paid only principal amount is to be repaid.

b. A bridge loan is another type of short-term bank loan that is often used to "bridge the gap" until a firm can arrange for long-term financing.

The above statement is True, Bridge loan are short term loan which provides temporary financing till the time permanent financing is arranged by company

c. Bridge loans are often quoted as discount loans with fixed interest rates.

The above statement is False, Bridge loans are short term loans with fixed interest rate but they are not discount loans because under discount loan, borrower gets an amount that is already reduced by Interest and other charges. Hence, no Interest is needed to be paid only principal amount is to be repaid.

d. After a natural disaster, lenders may provide businesses with short-term loans to serve as bridges until they receive insurance payments or long-term disaster relief.

The above statement is true. After natural disasters, the insurance amounts are not paid immediately but business needs funds for continuation. So, they opt for short term financing from lenders to continue business operations.

a. Inventory helps minimize the risk that the firm will not be able to obtain an input it needs for production.

The above statement is true. Inventory of Inputs ensures that inputs are redily available with the company as and when needed. thus, reducing the risk of its non availability at the time of production

b. Firms may hold inventory because factors such as seasonality in demand mean that customer purchases do not perfectly match the most efficient production cycle.

The above statement is True, there are some goods which are produced in one season but consumed in another. there are goods which are consumed throughout the year but are produced in a particular season. So, inventory of such goods are to be maintained to fulfill consumer's demand as and when it arises.

c. Because excessive inventory uses cash, efficient management of inventory increases firm value.

The above statement is True, Excessive inventory requires various costs such as storage cost, holding cost, electricity etc. Efficient management of Inventory will reduce these costs and increase the firms value

d. If a firm holds too much inventory, stock-outs, the situation when a firm runs out of product, may occur, leading to lost sales.

The above statement is False, Situation of Stock out can not occur if company holds excessive inventory because, the inputs will be readily available with the company as and when needed. Stock out will occur only if company follows Just-in-Time approach.