Firms Generally Choose to Finance Temporary Current Operating Assets with Short-Term

question 57

Multiple Choice

Firms generally choose to finance temporary current operating assets with short-term debt because

• A) short-term interest rates have traditionally been more stable than long-term interest rates.
• B) a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
• C) the yield curve is normally downward sloping.
• D) short-term debt has a higher cost than equity capital.
• E) matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.

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Definitions:

Sodium Borohydride

A chemical compound, NaBH4, used as a reducing agent in organic synthesis to reduce aldehydes, ketones, and other compounds.

IR

A type of spectroscopy used to identify and study chemicals through their interactions with infrared light, revealing molecular vibrations.

Cyclohexanone

A six-membered cyclic ketone, important as a solvent and as a precursor to nylon and other synthetic polymers.

Cyclohexanol

A secondary alcohol that consists of a cyclohexane ring with a hydroxyl group (-OH) attached.