All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to result in ____ expected after-tax earnings for the firm.
A) large; lower
B) constant; higher
C) constant; lower
D) large; higher

Question

Quizplus · Accepted Answer

Financing assets with a larger proportion of short-term debt often results in higher expected after-tax earnings due to typically lower interest rates on short-term debt compared to long-term debt. This can increase profitability as long as the firm can manage the repayment and rollover risks associated with short-term financing.

All Other Things Being Equal, a Policy of Financing Its