Final answer:
Firms issue commercial paper to manage working capital, such as to finance short-term liabilities, inventories, and receivables, while maintaining control over their operations without the commitment to scheduled interest payments or the selling of company shares. Option number b is correct.
Step-by-step explanation:
The most likely reason an organization would issue commercial paper is to manage working capital. Commercial paper is a short-term, unsecured promissory note issued by corporations with a high credit rating. It is used primarily for the financing of accounts receivable and inventories, as well as meeting short-term liabilities.
The nature of commercial paper makes it unsuitable for financing long-term projects, as it typically matures within a very short period of time, usually less than 270 days. Issuing commercial paper is a way for firms to maintain control over their business operations without the need to make regular interest payments on bank loans or to issue bonds, and it does not involve selling off ownership like issuing stock.
Firms often opt for commercial paper when they require quick funds to cover temporary cash flow shortages or other short-term financial needs. This contrasts with raising capital through bonds or equity which is more suitable for long-term investments and projects that generate returns over a longer period. Also, unlike refinancing long-term bond issues, commercial paper is used for providing liquidity in the short run.