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Social Science Clinic => Business => Topic started by: emoedee on May 9, 2022

Title: Leveraging is the technique of increasing the rate of return on an investment by financing it with ...
Post by: emoedee on May 9, 2022

Question 1

Inventory represents a cost while it is waiting to be sold.
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Question 2

Leveraging is the technique of increasing the rate of return on an investment by financing it with borrowed funds.
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Title: Leveraging is the technique of increasing the rate of return on an investment by financing it with ...
Post by: Mynameisrandom on May 9, 2022

Answer 1

true

Inventory is another area in which financial managers can fine-tune the firm's cash flow. Inventory represents a cost while it's sitting there waiting to be sold. It has the potential to be converted to cash but must be sold first.

Answer 2

true

Internal financing is not free; using money for any particular purpose has an opportunity cost, defined as the value of the most appealing alternative from among those that weren't chosen. For instance, a company might be better off investing its excess cash in external opportunities, such as stocks of other companies, and borrowing money to finance its own growth. Doing so makes sense as long as the company can earn a greater return on those investments than the rate of interest paid on borrowed money. This concept is called leverage because the loan acts like a lever: It magnifies the power of the borrower to generate profits.