ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations
Zeta Ltd has a seasonal business and needs to fund a temporary increase in inventory for three months each year. Which source of finance is most appropriate?
A bank overdraft is most appropriate because the need is temporary and seasonal. It is flexible and interest is charged only when it is used. Long-term loans or share issues would be costly and leave idle funds outside the three-month peak.
- AA bank overdraftCorrect
- BA new issue of ordinary shares
- CA 15-year bank loan
- DA rights issue
Explanation
An overdraft is flexible, and interest is charged only on the amount used, matching a short, recurring need. Share issues, rights issues and a 15-year loan are long-term commitments that would leave Zeta with surplus finance for most of the year.
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