If the Benefit of a Lower Rate from Short-Term Debt

question 95

Essay

If the benefit of a lower rate from short-term debt is offset by the risk that the firm will have to refinance at a higher rate,why would a firm choose an aggressive financing policy?

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Definitions:

Account Title

An account title is the name given to an account in the general ledger that identifies where transactions are recorded, such as "Revenue," "Accounts Payable," or "Cash."

Credit Side

The credit side of an account is where increases in liabilities, equity, and revenue accounts are recorded, as well as decreases in asset and expense accounts.

Dividends Account

An account used in bookkeeping to track dividends declared by a company to be paid out to its shareholders.

Debit

A bookkeeping record that leads to a rise in a company's assets or a fall in its liabilities on the balance sheet.