The risk to the firm of borrowing using short-term credit is usually greater than if it used long-term debt.Added risk stems from (1)the greater variability of interest costs on short-term than long-term debt and (2)the fact that even if its long-term prospects are good,the firm's lenders may not be willing to renew short-term loans if the firm is temporarily unable to repay those loans.

Question

Quizplus · Accepted Answer

As mentioned in the statement, the risk to the firm of borrowing using short-term credit is greater than using long-term debt due to the higher variability of interest costs and the possibility that lenders may not renew short-term loans.

The Risk to the Firm of Borrowing Using Short-Term Credit