Please answer both questions: Question 1: Current assets and most current liabil
ID: 2733757 • Letter: P
Question
Please answer both questions:
Question 1:
Current assets and most current liabilities are considered to be spontaneously generated when it comes to financial forecasting. What is meant by spontaneously generated?
Question 2:
A majority of corporations that have been in existence for a number of years have financed a majority of their assets through the use of retained earnings. The use of debt by a corporation has a cost through the form of interest charges. Is there a related cost associated with retained earnings or is it considered to be a “free financing” choice?
Explanation / Answer
Q1. The term spontaneously generated related to current assest and laibilities means genearation of current assets and liabilities as and when required i.e., immediately when ever there is a need to generate.
Q2. The related cost associated with retained earnings is the return required by the share holders of the company.