Explain the importance of identifying the primary source of repayment. Clearly, the primary source of repayment is always cash. The analysis question is really one of identifying the source of the cash used to repay the loan. Explain the advantages and disadvantages of the following sources of cash as the primary source of repayment on a loan:

Selling an asset

Increasing a liability Generating more sales

Decreasing expenses Issuing stock (equity)

Reducing cash dividends

Under what circumstances would you be comfortable with the mentioned sources being the primary source of repayment?