Which of the following statements concerning liquidity and debt is true?
A) The greater the use of short-term debt, the lower the risk of illiquidity.
B) Long-term debt is generally less costly than short-term debt.
C) A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt.
D) The risk of illiquidity does not depend on the mix of short-term versus long-term debt.

Question

Quizplus · Accepted Answer

Shifting from short-term debt to long-term debt can reduce a firm's risk for illiquidity because long-term debt is less likely to become due and payable in the near future, providing greater financial stability and predictability compared to a reliance on short-term debt. Additionally, long-term debt is generally less sensitive to changes in interest rates than short-term debt, reducing the company's exposure to interest rate risk.

Which of the Following Statements Concerning Liquidity and Debt Is