CFIN chapter 16 || with Complete Solutions.

Which of the following statements is correct? 1) Under normal conditions the shape of the yield curve implies that the interest cost of short-term debt is greater than that of long-term debt, although short-term debt has other advantages that make it desirable as a financing source. 2) Flexibility is an advantage of short-term credit but this is somewhat offset by the higher flotation costs associated with the need to repeatedly renew short-term credit. 3) A short-term loan usually can be obtained more quickly than a long-term loan but the penalty for early repayment of a short-term loan is significantly higher than for a long-term loan. 4) Statements about the flexibility, cost, and riskiness of short-term versus long-term credit are dependent on the type of credit that actually is used. 5) Short-term debt is often less costly than long-term debt and the major reason for this is that short-term debt expose correct answers 4) Statements about the flexibility, cost, and riskiness of short-term versus long-term credit are dependent on the type of credit that actually is used. Under the terms of trade found in most industries, the costly component of trade credit. 1) is relatively cheap, thus financially strong firms forego the cash discount. 2) is relatively expensive, thus financially strong firms will take the cash discount. 3) is relatively expensive, thus financially strong firms forego the cash discount. 4) is relatively cheap, thus financially strong firms will take the cash discount. 5) is relatively cheap, thus most financially strong firms don't consider the terms of trade. correct answers 2) is relatively expensive, thus financially strong firms will take the cash discount. If a firm is offered credit terms of 2/10, net 30, it is in the firm's financial interest to pay as early during the discount period as possible. True or False correct answers False Trade credit can be separated into two components: free trade credit, which involves credit received after the discount period ends, and costly trade credit, which is the cost of discounts not taken. 1) True 2) False correct answers False