Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages.

The following statement identifies a possible characteristic of short-term financing.

Consider this case:

Short-term loans usually have a lower cost than long-term loans.

Identify whether the preceding statement is true or false.

a. This statement is true and an advantage of short-term financing.

b. This statement is false and a disadvantage of short-term financing.

Question

Business

Alexia Beltran

23 February, 19:45

Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages.

The following statement identifies a possible characteristic of short-term financing.

Consider this case:

Short-term loans usually have a lower cost than long-term loans.

Identify whether the preceding statement is true or false.

a. This statement is true and an advantage of short-term financing.

b. This statement is false and a disadvantage of short-term financing.

+4

Answers (1)

Know the Answer?

Cailyn Burke · Answer 1

a. true

b. false

Explanation:

The advantage of short-term financing is better seen when a capital project is financed by a non - current liability. Where the period of Investment is longer than the period the financial charge is applied to the firm