Which of the Following Statements Concerning Liquidity and Debt Is

question 14

Multiple Choice

Which of the following statements concerning liquidity and debt is true?

• A) The greater the use of short-term debt, the lower the risk of illiquidity.
• B) Long-term debt is generally less costly than short-term debt.
• C) A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt.
• D) The risk of illiquidity does not depend on the mix of short-term versus long-term debt.

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Definitions:

Split-off Point

The stage in a production process where multiple products are generated from a common input, and each product can then be sold or processed further.

Raw Material Input

The basic materials and components used at the start of the production process to manufacture finished goods.

Contribution Margin

The difference between sales revenue and variable costs of a product, indicating how much contributes towards covering fixed costs and generating profit.

Machine Minutes

A measure of production time that indicates how long a machine has been operating to produce goods.