When a Firm Finances Long-Term Assets with Short-Term Sources of Funding,it

question 120

Multiple Choice

When a firm finances long-term assets with short-term sources of funding,it:

• A) reduces the risk of cash shortage.
• B) will have lower interest expense.
• C) improves the leverage ratio.
• D) ignores the principle of matched maturities.

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Definitions:

Mixed Cost

Expenses that contain both fixed and variable components, changing in total with the level of activity but not proportionately.

Cost-Volume-Profit Analysis

An accounting method used to determine the effects on company profits of different levels of sales volume and costs.

Fixed Costs

Fixed expenditures that are unaffected by the amount of goods produced or sold, covering rent, salaries, and insurance.

Volume Of Activity

A term often used in cost accounting to denote the amount of production or the level of sales of a company during a specific period.