OMEGA STEEL must raise cash quickly to meet current financial obligations.

The owners want to raise cash using two methods. The first is to take out a loan which it expects to pay off early as it is able to obtain long term financing at very reasonable interest rates.

The second method of raising cash involves converting accounts receivables into cash. Several investors have expressed an

interest in paying cash for OMEGA STEEL'S accounts receivable however, because of OMEGA STEEL'S weak financial condition, no intermediary is willing to act as a special purpose vehicle (SPV) for the investors.

a. Explain how being able to obtain long term financing affects OMEGA STEEL'S interest rate risk;

b. Explain how OMEGA STEEL'S inability to find an SPV to help it convert its accounts receivable to cash will affect its credit risk.

Answer rating: 100% (QA)

a Obtaining longterm financing can mitigate Omega Steels interest rate risk by providing stability i... View the full answer