Firms generally choose to finance temporary current operating assets with short-term debt because
A)matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.
B)short-term interest rates have traditionally been more stable than long-term interest rates.
C)a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
D)the yield curve is normally downward sloping.
E)short-term debt has a higher cost than equity capital.

Question

Quizplus · Accepted Answer

Firms choose to finance temporary current operating assets with short-term debt because matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital. This helps in reducing the interest expense and improves the cash flow of the company.

Firms Generally Choose to Finance Temporary Current Operating Assets with Short-Term