Which of the Following Statements Is CORRECT

question 66

Multiple Choice

Which of the following statements is CORRECT?

• A) Conservative firms generally use no short-term debt and thus have zero current liabilities.
• B) A short-term loan can usually be obtained more quickly than a long-term loan, but the cost of short-term debt is normally higher than that of long-term debt.
• C) If a firm that can borrow from its bank at a 6% interest rate buys materials on terms of 2/10 net 30, and if it must pay by Day 30 or else be cut off, then we would expect to see zero accounts payable on its balance sheet.
• D) If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it will not have an adverse financial impact on your firm if the customer periodically pays off its entire balance.
• E) Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk.

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Definitions:

Multivariate Analysis

A set of statistical techniques used to analyze data that involves more than one variable, understanding the effect and relationships among them.

Discriminant Analysis

A statistical technique used to classify observations into predefined categories based on several predictor variables.

Multiple Regression

A statistical technique whereby several variables are used to predict one.