Disadvantages of using current liabilities as opposed to long-term debt include
A) greater risk of illiquidity.
B) uncertainty of interest costs.
C) higher cash flow exposure.
D) both A and B.

Question

Quizplus · Accepted Answer

Using current liabilities instead of long-term debt may increase the risk of illiquidity, as current liabilities are due within a year and may not be able to be paid back if cash flow is insufficient. There is also uncertainty regarding interest costs with current liabilities, as they may fluctuate with market conditions. Therefore, both options A and B are disadvantages of using current liabilities compared to long-term debt.

Disadvantages of Using Current Liabilities as Opposed to Long-Term Debt