Which of the following is an advantage of utilizing short-termdebt to finance th

Question

Which of the following is an advantage of utilizing short-termdebt to finance the acquisition of short-term assets?
a. Interest rates on short-term debt are usually lower thaninterest-rates on long-term debt. b. It exposes the firm to less risk than if the firm were touse long-term debt. c. It improves the firm's debt ratio. d.None of the above. Which of the following is an advantage of utilizing short-termdebt to finance the acquisition of short-term assets?
a. Interest rates on short-term debt are usually lower thaninterest-rates on long-term debt. b. It exposes the firm to less risk than if the firm were touse long-term debt. c. It improves the firm's debt ratio. d.None of the above.

Explanation / Answer

Which of the following is an advantage of utilizing short-termdebt to finance the acquisition of short-term assets?

(a)    Interest rates on short-term debt are usuallylower than interest-rates on long-term debt

The time period is short therefore; there is low interest ratewhich means that the cost of the loan is low as compare to otherfinances. For example, treasury bonds and commercial deposits arethe short term finances and they have very low interest rates.

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