A decrease in interest rates raises ________ of short-term and long-term liabilities and can ________ the value of the firm.
A) the present value; lower
B) the present value; increase
C) the future value; lower
D) the future value; increase

Question

Quizplus · Accepted Answer

A decrease in interest rates will lower the present value of both short-term and long-term liabilities since future cash flows are discounted at a lower rate. This can potentially lower the value of the firm since the liability side of the balance sheet has decreased in value.

A Decrease in Interest Rates Raises ________ of Short-Term and Long-Term