Assume That Long-Term Interest Rates Are Substantially Higher Than Short-Term

question 6

Essay

Assume that long-term interest rates are substantially higher than short-term interest rates and are expected to remain that way for the foreseeable future.How does this affect a firm's selection of a financing policy for its current assets?

---

Definitions:

Flexible Budget

A budget that adjusts or scales according to the volume of activity, providing a more useful tool for performance evaluation.

Direct Labor

Labor costs that are easily traced to or directly associated with specific products or services.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and loan payments.