1. The availability of bank credit often is more important to a small firm than to a large one. Why?
2. What kinds of firms use commercial paper? Could Mama and Papa Gus's Corner Grocery borrow using this form of credit?
3. Suppose a firm can obtain funds by borrowing at the prime rate or by selling commercial paper.
a. If the prime rate is 51/2 percent, what is a reasonable estimate for the cost of commercial paper?
b. If a substantial cost differential exists, why might a firm like this one actually borrow some of its funds in each market?