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. This statement is true and an advantage of short-term financing.   This statement is false and a disadvantage of short-term financing.     Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source. Description Short-Term Financing Source Continually recurring short-term liabilities commonly generated from unpaid wages or taxes.      An obligation backed by collateral, often inventories or accounts receivable.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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.
This statement is true and an advantage of short-term financing.
 
This statement is false and a disadvantage of short-term financing.
 
 
Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source.
Description
Short-Term Financing Source
Continually recurring short-term liabilities commonly generated from unpaid wages or taxes.     
An obligation backed by collateral, often inventories or accounts receivable.     
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