Which of the Following Statements Best Describes Short-Term Financing

question 16

Multiple Choice

Which of the following statements best describes short-term financing?

• A) 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 the use of short-term debt would probably increase the firm's risk.
• B) Conservative firms generally use no short-term debt and thus have zero current liabilities.
• C) 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.
• D) If a firm that can borrow from its bank 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.

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Definitions:

Demand Data

Information related to the quantity of a good or service consumers are willing and able to purchase at various prices.

Specific Firm

Refers to a particular company or business entity that operates in a competitive market.

Demand Schedule

A table that shows the quantity of a good or service that consumers are willing to buy at different price points.

Profit-Maximizing

A strategy where businesses aim to achieve the highest possible profit given their resources, market conditions, and constraints.