Question

Dominic and Matherson, a finance management company, lends money to Ebok, a fast food chain, in order to help Ebok market its new product. Dominic and Matherson provides financial support in the form of bonds. Which of the following financing options is being used by Ebok in the given scenario?
(A) Long-term debt
(B) Trade credit
(C) Commercial paper
(D) Factoring

Answer 1

Answer:

(A) Long- term debt

Explanation:

Financing via issue of long term bonds represents long term debt financing.

Bonds refer to those securities issued by an issuer (or lender) to a borrower, bearing a fixed rate of interest payable on timely basis as well as repayment of principal at the end of the term.

Long term financing is generally for a period which is greater than one year. Usually long term financing is resorted to by a corporation when capital outlay of funds required, or investment in long term projects such as building, purchase of machinery etc which involve sizable funds.

Bonds carry interest obligation in the sense borrower has to pay interest on timely basis.