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

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.

Quizplus · Accepted Answer

Matching the maturities of assets and liabilities can reduce risk, and short-term debt is often cheaper than long-term debt.

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