Which of the Following Statements Is Incorrect

question 133

Multiple Choice

Which of the following statements is incorrect?

• A) Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.
• B) Accruals are "free" in the sense that no explicit interest is paid on these funds.
• C) A conservative approach to working capital will result in all permanent assets being financed using long-term securities.
• D) The risk to the firm of borrowing with short-term credit is usually greater than with long-term debt. Added risk can stem from greater variability of interest costs on short-term debt.
• E) Bank loans have a lower interest rate than commercial paper.

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Definitions:

Residual Value

The amount for which the lessee can purchase a leased vehicle at the end of the term of the lease.

Compounded Quarterly

Calculating interest on both the initial principal and previously accumulated interest four times a year.

Lease Interest

The interest cost associated with leasing an asset, often a charge in addition to the lease payments.

General Annuity

An annuity in which the payment interval does not equal the compounding interval.