The More Short-Term Financing There Is Relative to Long-Term Financing

question 98

True/False

The more short-term financing there is relative to long-term financing, the riskier the financial structure.

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Definitions:

Capital Markets

Capital Markets are financial markets where long-term debt or equity-backed securities are bought and sold, facilitating the raising of capital.

Transaction Costs

Expenses incurred when buying or selling securities, including commissions, exchange fees, and taxes that can affect the profitability of investments.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income.

Bankruptcy Costs

Expenses and financial losses associated with undergoing bankruptcy, including legal fees, asset liquidation costs, and potential loss of business.