Which Statement Best Describes Short-Term Versus Long-Term Financing

question 18

Multiple Choice

Which statement best describes short-term versus long-term financing?

• A)Flexibility is an advantage of short-term credit, but this is somewhat offset by the high flotation costs associated with the need to repeatedly renew short-term credit.
• B)A short-term loan can usually be obtained more quickly than a long-term loan, but the penalty for early repayment of a short-term loan is normally significantly higher than that for a long-term loan.
• C)The flexibility, cost, and riskiness of short-term versus long-term credit are dependent on the type of credit that is actually used.
• D)Short-term debt is often less costly than long-term debt, and the major reason for this is that short-term debt exposes the borrowing firm to much less risk than long-term debt.

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Definitions:

Self-Interest

The focus on one's own advantage or well-being without necessarily considering that of others.

Acceptable

Considered suitable or satisfactory under the circumstances or by societal standards.

Optimal

Optimal describes the most desirable or advantageous condition or level of performance achievable under given circumstances.

Ranking Items

A method used to sort or prioritize items, tasks, or options based on specific criteria.