Question

Short- term financing is often sought by businesses for a variety of purposes. Which of the following is NOT usually one of the reasons businesses obtain short-term financing?

A) Managing Seasonal Fluctuations
B) Expanding Production Capacity
C) Funding Long-Term Projects
D) Covering Accounts Payable

Answer 1

Short-term financing is not usually sought for funding long-term projects such as buying machinery or building new facilities; these require long-term investments due to their capital-intensive nature.The right option is A)

Step-by-step explanation:

When businesses seek short-term financing, they typically have immediate or short-term needs. Common reasons for obtaining short-term financing include Managing Seasonal Fluctuations, Covering Accounts Payable, and meeting other short-term operational costs. However, Funding Long-Term Projects, such as purchasing machinery, building a new plant, or investing in research and development, is not a usual reason for seeking short-term financing, as these are capital intensive and usually funded through long-term financing options.

Producers of goods and services find expanding production much easier in the long term, which can involve building new facilities, hiring employees, or opening new stores. These types of expansions require substantial investment and are planned over a period of several years, making them unsuitable for short-term financial solutions which are geared towards immediate or near-term needs.