Borrowing funds using short-term debt,such as commercial paper,and using the proceeds to invest in long-term investments,creates a refinancing risk that can force firms to sell assets at distressed prices if financing becomes unavailable.

Question

Quizplus · Accepted Answer

When a company borrows funds using short-term debt to invest in long-term investments, it creates a refinancing risk. If the financing becomes unavailable, the company may have to sell its assets at distressed prices to make payments. This risk is a well-known concept in finance known as refinancing risk. Therefore, the statement is true.

Borrowing Funds Using Short-Term Debt,such as Commercial Paper,and Using the Proceeds