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:

Mortgagor

The borrower in a mortgage loan agreement, who pledges property to the lender as security for the loan.

Eminent Domain

The power of the government to take private property for public use, with compensation to the owner.

Privately Owned Land

Land that is owned by individuals or entities other than the government, with the owners maintaining control and rights over the property.

Single-family Dwelling Ordinance

A municipal regulation which specifies zoning laws and construction standards primarily for houses intended for single families.