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company increases the amount of short-term financing relative to long-term financing, the Basic Calculator 2) Time Value Tables 3 4 A
company increases the amount of short-term financing relative to long-term financing, the Basic Calculator 2) Time Value Tables 3 4 A. Current ratio increases. B. Leverage of the firm increases. C. Greater the risk that it will be unable to meet principal and interest payments. 10 11 D. Likelihood of having idle liquid assets increases.
Expert Solution
Answer (C) greater the risk that it will be unable to meet principal and interest payments is correct. A rise within the proportion of short funding won't have an effect on a company’s degree of leverage, however risk is exaggerated due to the requirement for frequent refinancing. as a result of the someone company are going to be forced to fulfill principal and interest payments quickly, maybe before expected funds from a replacement project, the danger of default is exaggerated. Also, future interest rates square measure tough to predict.
Answer (B) is wrong as a result of Leverage is that the use of borrowed funds to earn returns for stockholders. it's immaterial whether or not the borrowed funds square measure long- or short.
Answer (D) is wrong as a result of The length of a loan doesn't have an effect on the number of quick assets. each long- and short loans lead to quick assets.
Answer (A) is wrong as a result of a rise in current liabilities decreases the current ratio.
Answer (C) greater the risk that it will be unable to meet principal and interest payments is correct. A rise within the proportion of short funding won't have an effect on a company’s degree of leverage, however risk is exaggerated due to the requirement for frequent refinancing. as a result of the someone company are going to be forced to fulfill principal and interest payments quickly, maybe before expected funds from a replacement project, the danger of default is exaggerated. Also, future interest rates square measure tough to predict.
Answer (B) is wrong as a result of Leverage is that the use of borrowed funds to earn returns for stockholders. it's immaterial whether or not the borrowed funds square measure long- or short.
Answer (D) is wrong as a result of The length of a loan doesn't have an effect on the number of quick assets. each long- and short loans lead to quick assets.
Answer (A) is wrong as a result of a rise in current liabilities decreases the current ratio.
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