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Question: Provide an example of a short-term financing strategy and a long-term financing strategy. In what financial scenario would each strategy be most applicable? Is one method preferable to the other? Explain your rationale.
Short-term financing strategy: Taking out a business loan for a short period of time, typically 1-3 years. This can be used to fund one-time purchases or investments, increase operating capital, or cover an unexpected asset deficiency. Long-term financing strategy: Issuing stocks and bonds to the public to raise capital. This allows a company to receive long-term funds from investors over several years, providing greater flexibility to meet financial obligations. In terms of financial scenarios, a short-term financing strategy is most applicable in situations involving immediate cash flow needs and quick investments. Long-term financing strategies are most applicable in scenarios involving slow growth investments and larger capital outlays. In terms of preference, it depends on the financial needs of the company and the risk tolerance of the company and its investors. Short-term financing may be preferable in situations where immediate cash flow is needed and the business is confident in its ability to pay back the loan quickly. Long-term financing may be preferable in situations where the business needs more capital to grow and can meet the longer-term obligations of issuing stock and bonds.
Feb. 22, 2023, 9:36 a.m.
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