Question

Which of the following statements is CORRECT?
A. Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk.
B. Conservative firms generally use no short-term debt and thus have zero current liabilities.
C. A short-term loan can usually be obtained more quickly than a long-term loan, but the interest rate on short-term debt is normally higher than that of long-term debt.
D. If a firm that can borrow from its bank at a 6% interest rate buys materials on terms of 2/10, net 30, and if it must pay by Day 30 or else be cut off, then we would expect to see zero accounts payable on its balance sheet.

Answer 1

Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk.

Option A

Explanation:

In business finance, the productivity of an undertaking, also defined as net assets or asset minus debt, is a calculation of its viability with respect to equity.ROE is a calculation about how well funds are used to produce increases in profits.

Companies are able to fund themselves with stocks and bonds. A business will raise its investment value by increasing the number of debt capital compared to its equity capital. There was a misunderstanding. Then you see that the new company has a better ROE because of its financial resources as you split the net income per shareholder's capital stock.