Question

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.

Answer 1

a.true

b.false

Step-by-step 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