Why Do Firms Generally Choose to Finance Temporary Net Operating

question 7

Multiple Choice

Why do firms generally choose to finance temporary net operating working capital with short-term debt?

• A)Matching the maturities of assets and liabilities reduces risk.
• 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 has traditionally been downward sloping.

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Definitions:

Labour Cost

Represents the total expense incurred by employers for the wages, benefits, and taxes associated with their workforce.

Extra Workers

Employees hired in addition to the regular workforce to handle additional demand, seasonal peaks, or special projects.

Frederick W. Taylor

An American mechanical engineer who is regarded as the father of scientific management, aiming to improve economic efficiency and labor productivity.

Psychology

The scientific study of the human mind and its functions, especially those affecting behavior in a given context.