In making a recommendation to Merit, Finch had to consider a number of issues. First, Merit Marine could look forward to the possibility of very strong cash flow over the next several years because of a low level of planned capital expenditures and a likelihood of increased sales. In addition, Merit had been concentrating on speeding receivables and reducing the level of inventory carried. Finch knew that if too much of Merit’s debt was fixed for too long a period, the firm would incur a prepayment penalty if cash flow was sufficient to reduce outstanding long term debt.