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Author Question: Why is it unwise for a construction company to finance the purchase of capital assets with its ... (Read 103 times)

skymedlock

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on: Jul 26, 2018
Why is it unwise for a construction company to finance the purchase of capital assets with its working capital?
 
  What will be an ideal response?

Question 2

What is a line of credit and why do many construction companies obtain one from a bank?
 
  What will be an ideal response?


SeanoH09

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Reply #1 on: Jul 26, 2018
Answer to Question 1

Purchasing capital assets for cash usually is not a good strategy, because it may deplete the company's working capital such that it is unable to finance its cash flow requirements.

Answer to Question 2

A line of credit is a right to borrow funds up to a specified limit for a fee. It is similar to having a credit card in that a fee is assessed for the right to use the credit but interest is charged only on the unpaid balance.


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