FIN 502 Chapter Notes - Chapter 12: Cash Flow, Matching Principle, Interest Expense

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29 Nov 2017
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Fin chapter 12 credit and debt management. The right way is to take full advantage of the many attractive features that the credit card provides - such as the free-loan grace period, detailed record keeping, no need to carry quantities of cash, etc. The wrong way is to build up a large debt balance and pay over 18% non-tax-deductible interest. A borrower"s debt capacity is defined as the amount of debt that he or she can reasonably expect to be able to repay under the terms of the loan agreements, given current and expected future financial situations. Liquidity is the ability of a family to meet debt service payments in the short run. Solvency is the long-run ability of the family to pay its debts. there are three characteristics of a family"s assets and cash flow -liquidity, solvency, and risk- that affect the borrower"s debt capacity.

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