If a Firm Relies on Short-Term Debt or Current Liabilities

question 35

Multiple Choice

If a firm relies on short-term debt or current liabilities in financing its asset investments,and all other things remain the same,what can be said about the firm's liquidity?

• A) The firm will be relatively more liquid.
• B) The firm will be relatively less liquid.
• C) The liquidity of the firm will be unchanged.
• D) The firm will be more liquid only if interest rates are below the company's weighted average cost of capital.

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Definitions:

Financial Performance

An evaluation of a company's ability to utilize assets from its core business operations to produce income.

GAAP Net Income

The profit of a company computed based on Generally Accepted Accounting Principles, which includes all revenues, expenses, gains, and losses.

Annual Incentive Plans

Programs designed by organizations to reward employees based on the achievement of specific annual performance goals.

Conflicts of Interest

Situations where a person or institution has multiple interests, and serving one interest could involve working against another, potentially leading to ethics concerns.