Generally speaking, short-term debt is riskier than long-term debt, but it also

Question

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 usually has higher interest rates. Interest rates tend to fluctuate more over time. It takes a longer time to obtain this type of financing. Suppose you are running a firm that needs to raise capital today and you are choosing between short-term and long-term debt. The firm does not currently have a strong enough cash flow to fund new operations internally, but you expect that this situation will soon change and the firm's need for external funds will diminish. Which funding source is likely best for your firm? O Short-term debt O Long-term debt

Explanation / Answer

Answer:

1 Short Term Loan Interest rates are higher than Long Term Interest Rates.

2. Interest Rates Fluctuate more in short term debts.

3. Short term financing is easily obtained as compared to Long term financing.

4. Operational expenses are financed through short term financing.

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