Asked by Jamie PARKER on Jul 14, 2024
Verified
The risk to the firm of borrowing using short-term credit is usually greater than if it used long-term debt.Added risk stems from greater variability of interest costs on short-term debt.Even if its long-term prospects are good,the firm's lender may not renew a short-term loan if the firm is even temporarily unable to repay it.
Short-term Credit
Credit facilities, such as loans or lines of credit, that are due for repayment within a short period, typically less than one year.
Interest Costs
The expense incurred by an entity for borrowed funds, usually expressed as an annual percentage rate.
Long-term Debt
Financial obligations of a company or individual that are due after a period of one year or more.
- Review the financial implications of engaging in short-term versus long-term borrowing.
Verified Answer
HG
H??ng GiangJul 21, 2024
Final Answer :
True
Explanation :
This statement is true as short-term credit carries a higher risk due to the variability of interest costs and the fact that lenders may not renew the loan if the firm is unable to repay it. Long-term debt, on the other hand, provides more stability and certainty for the firm.
Learning Objectives
- Review the financial implications of engaging in short-term versus long-term borrowing.
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