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

question 22

Multiple Choice

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

• A) 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.
• B) short-term interest rates have traditionally been more stable than long-term interest rates.
• C) 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.
• D) the yield curve is normally downward sloping.
• E) short-term debt has a higher cost than equity capital.

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Definitions:

Wage Rate

The amount of compensation an employee receives per unit of time or per task completed, typically expressed in terms of dollars per hour.

Marginal Revenue Product

The supplementary income derived from the deployment of an extra unit of a production resource, like manpower or assets.

Rent

A regular payment made by a tenant to an owner for the use of the owner's property or land.

Complementary Resource

An asset or input that increases the utility or productivity of another asset or input when used in conjunction.