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Which of the following strategies would be most appropriate to solve this liquidity problem at Nic's Cafe? (A) Issue debentures (B) Obtain a mortgage (C) Seek venture capital (D) Apply for an overdraft - HSC - SSCE Business Studies - Question 15 - 2005 - Paper 1
Question 15
Which of the following strategies would be most appropriate to solve this liquidity problem at Nic's Cafe? (A) Issue debentures (B) Obtain a mortgage (C) Seek ven... show full transcript
Worked Solution & Example Answer:Which of the following strategies would be most appropriate to solve this liquidity problem at Nic's Cafe? (A) Issue debentures (B) Obtain a mortgage (C) Seek venture capital (D) Apply for an overdraft - HSC - SSCE Business Studies - Question 15 - 2005 - Paper 1
Step 1
Apply for an overdraft
Answer
To address a liquidity problem, Nic's Cafe needs immediate access to cash to meet short-term obligations. Among the options presented:
- Issue debentures is a long-term financing option and not suitable for immediate liquidity needs.
- Obtain a mortgage involves long-term commitments, which do not resolve short-term cash flow issues.
- Seek venture capital typically involves substantial investment rounds, which can be slow and may not be available immediately.
- Apply for an overdraft provides a direct and quick solution to cash flow deficiencies, allowing Nic's Cafe to withdraw more money than is available in the account up to an agreed limit.
Therefore, the most appropriate strategy to solve the liquidity problem is to apply for an overdraft.