Which of the Following Best Describes the Concept of Maturity

question 116

Multiple Choice

Which of the following best describes the concept of maturity matching?

• A)Companies use funds from selling stocks to fund long-term projects and funds from selling bonds to fund short-term projects.
• B)Companies try to match the term of a project with the maturity of the financing that pays for it.
• C)Companies use funds from selling bonds to fund long-term projects and funds from selling stocks to fund short-term projects.
• D)Companies always use bonds to finance both short- and long-term projects because stocks have no maturity and therefore cannot be matched to the length of projects.
• E)None of the above describes the concept of maturity matching.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, which is recognized in the financial statements as an expense.

Times Interest Earned Ratio

A financial metric that measures a company's ability to cover its interest expenses with its earnings before interest and taxes.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been deducted from total revenue.

Equity Multiplier

A financial leverage ratio that measures the portion of a company’s assets that is financed by stockholders' equity.