Which Statement Best Describes Short-Term Financing

question 96

Multiple Choice

Which statement 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:

Misinformation Effect

The occurrence where an individual’s recollection of specific events deteriorates in accuracy due to information received after the event.

Self-relevant Memories

Memories that are personally significant and have emotional importance, playing a key role in identity and self-concept.

Primacy Effect

The tendency to remember information at the beginning of a list better than information that comes later.

Bottom-up Approach

A strategy or method that begins with specific details or elements and builds up to a more general, comprehensive system or understanding.