Question: What are the advantages and disadvantages of short- and long-term borr

Question

Question: What are the advantages and disadvantages of short- and long-term borrowing to meet working capital needs.

Answer:Under normal conditions health care facilities can usually achieve higher earnings (lower interest costs) through short-term debt but will do so at an increased risk of being unable to meet higher debt payments. On the other hand, facilities borrowing long-term to support working capital, lower their earnings (increased interest costs) but reduce the risk through lower debt payments.

Is this statement True or False?

Explanation / Answer

Perfect explanation.

Also, a company has some permanent working capital and some temporary working capital requirements. It should finance permanent working capital requirements with long term debt and short term working capital requirements with short term debt or current liabilities.

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