Why would a firm ever use short-term debt to finance permanent current assets?
A) This would be illogical and is rarely observed.
B) This would occur if short-term rates were much lower than long-term rates.
C) This would only occur if the managers were very conservative.
D) None of the options.

Question

Quizplus · Accepted Answer

Short-term interest rates are often lower than long-term rates, so a firm might use short-term debt to finance permanent current assets to take advantage of these lower rates, despite the risk of having to refinance the debt in the future.

Why Would a Firm Ever Use Short-Term Debt to Finance