Which of the following statements is correct?
a. Short-term debt is often less costly than long-term debt and the major reason for this is that short-term debt exposes the borrowing firm to much less risk than long-term debt.
b. 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.
c. 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.
d. 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.
e. 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.
Answer: e. 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.
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