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:

Petroleum

A naturally occurring liquid found beneath the Earth's surface that can be refined into fuel and various chemical products.

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The value of the best alternative that must be sacrificed in order to pursue a certain action.

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Two-wheeled vehicles powered by an engine, often used for both everyday transport and recreational activities.

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Sport Utility Vehicles; a category of motor vehicles that combine elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive.