Firms Generally Choose to Finance Temporary Current Operating Assets with Short-Term

question 57

Multiple Choice

Firms generally choose to finance temporary current operating assets with short-term debt because

• A) short-term interest rates have traditionally been more stable than long-term interest rates.
• B) a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
• C) the yield curve is normally downward sloping.
• D) short-term debt has a higher cost than equity capital.
• E) matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.

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Definitions:

Germinating Seeds

The process by which a seed begins to grow and put out shoots after a period of dormancy.

Endoplasmic Reticulum

A network of membranous tubules within the cytoplasm of eukaryotic cells, involved in protein and lipid synthesis, and calcium storage.

Ribosomes

Cellular organelles that function as the site of protein synthesis, reading mRNA and assembling amino acids into proteins.

Golgi Apparatus

A cell organelle involved in modifying, sorting, and packaging proteins and lipids for secretion or use within the cell.