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.
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