All of the following are likely to increase the cost of a company's short-term financing EXCEPT
A) an increase in the bank's prime lending rate.
B) an increase in the compensating balance required.
C) taking a loan on a discount basis.
D) an increase in the company's debt rating by Moody's or Standard and Poors.

Question

Quizplus · Accepted Answer

An increase in the company's debt rating by Moody's or Standard and Poors would indicate that the company is less risky, and therefore likely to receive lower interest rates on its financing. Choices A and B increase the direct cost of borrowing, while choice C is a form of short-term borrowing that involves a lower interest rate but requires payment upfront, resulting in a higher effective interest rate.

All of the Following Are Likely to Increase the Cost