Why do firms generally choose to finance temporary net operating working capital with short-term debt?
A)Matching the maturities of assets and liabilities reduces risk.
B)Short-term interest rates have traditionally been more stable than long-term interest rates.
C)A firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
D)The yield curve has traditionally been downward sloping.

Question

Quizplus · Accepted Answer

Financing temporary net operating working capital with short-term debt matches the maturities of assets and liabilities, which helps to reduce risk. It ensures that the funds borrowed are only available for a short period and can be repaid without significant financial strain on the firm.

Why Do Firms Generally Choose to Finance Temporary Net Operating