A Firm Will Usually Increase the Ratio of Short-Term Debt

question 48

Multiple Choice

A firm will usually increase the ratio of short-term debt to long-term debt when

• A) short-term debt has a lower cost than long-term equity.
• B) the term structure is inverted and expected to shift down.
• C) the term structure is upward sloping and expected to shift up.
• D) the firm is undertaking a large capital budgeting project.

---

Definitions:

Retained Earnings Statement

A financial statement that outlines the changes in retained earnings for a specific period.

Treasury Stock

Treasury stock consists of shares that were issued and subsequently reacquired by the issuing corporation, reducing the amount of outstanding stock on the open market.

Voluntary Restriction

Voluntary restriction refers to limitations or constraints that an organization chooses to impose on itself, often related to its operations or the use of its assets, not mandated by external regulations.

Retained Earnings

The accumulated net income of a company that is retained and not distributed to shareholders as dividends.