Attempts: Keep the Highest:/4 13. Short-term versus long-term financing Generall
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Attempts: Keep the Highest:/4 13. Short-term versus long-term financing Generally speaking, short-term debt is riskier than long-term debt, but it also has some advantages. In the following 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 has more covenants that restrict the firm's actions. This loan is more flexible and can be used to adapt to changing market conditions. The lender will insist on a more thorough financial examination before extending this kind of credit. Omni Consumer Products Co.'s CFO is concerned with the possibility of interest rates rising over time. Which type of debt would be riskiest to Omni Consumer Products Co. if the firm is most concerned with rising interest rates? Long-term debt O Short-term debt Flash Player MAC 27,0,0,187 23 3.34.1 2004-2016 Aplia. All rights reserved 2013 Cengage Learning exoept as noted. All rights reserved Continue without savingExplanation / Answer
1) Convenant is a assurance that the company would not exceed certain ratios during the tenure of the loan. A long-term debt has more covenants than a short term debt.
2) A short-term debt is more flexible than a long term loan as they usually have more relaxed elgibility.
3) A long-term debt involves a more thorough examination than a short term loan.
4) A short-term debt would be more riskier if the firm is most concerned with rising interest rates as it would have a longer tenure and will have the most fluctuations in interest rates.
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