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Home Grades Personalized Reviews Discussion Course Materials Working Capital Management Graded Assignment Read Chapter 15| Back to Assignment Due Thursday 08.02.18 at 1145 Attempts: Keep the Highest:14 5. Short-term versus long-term financing Aa Aa short-term debt is riskier than long-term debt, but it also has some advantages. In the following Generally speaking, table, identify which type of funding (short-term debt or long-term debt) is being described in each case. Short-term Debt Long-term Debt This loan allows firms to keep relatively stable interest costs over time. This form of financing can be obtained faster When a firm faces an upward-sloping yield curve, this form of debt is more expensive. Suppose ong-term debt. The firm does not currently have a strong enough cash flow to fund new you expect that this situation will soon change and the firm's source is likely best for your firm? you are running a firm that needs to raise capital today and you are choosing between short-term and operations internally, but or external funds wil diminish. Which funding O Short-term debt O Long-term debt without saving 20 F5 F7 F8 F9 F4

Explanation / Answer

Answer:

(1): Long term debt allows firms to keep relatively stable interest cost over time.

Becasue long term loan gets economies of scale so interest cost gets stable over the period of time

(2): Short term debt can be obtained faster.

Because the duration is short so there are less formalities in short term debt that in long term debt, it can be obtained easily and faster too.

(3): When firm faces an upward sloping yield curve, long term debt is more expensive

Because the rates are expected to increase in the longer term.

Answer(4): I will choose short term debt as firm expects that it will soon get cash flows and external finances will not be needed after that so short term debt will be good to take.

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