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AFB, Inc. purchases a new delivery van which is expected to increase cash flows for the next 10 years. AFB can finance the purchase
AFB, Inc. purchases a new delivery van which is expected to increase cash flows for the next 10 years. AFB can finance the purchase with a standard 48-month vehicle loan, or by getting a 10-year loan from the bank. According to the hedging principle, AFB should A. use the 10-year financing in order to match the cash flow stream from the asset with the financing repayments. B. avoid using either loan and finance the truck with current cash reserves to avoid interest expense. C. use either type of financing, but hedge the risk in the options market. D. use the 48 - month loan since it matches the type of asset with the type of loan.
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