1 The managers of a firm decide to finance assets with shortterm liabilities Which of the following


1.The managers of a firm decide to finance assets with short-term liabilities. Which of the following

circumstances is consistent with the decision?

A) The firm’s owners are risk averse.

B) The yield curve (term structure of interest rates) is inverted (downward sloping).

C) The firm’s assets are highly liquid because they consist mainly of a storage facility in a booming industrial area and canned food inventory.

D) A firm’s liquidity risk decreases as a firm relies more and more on short-term financing.

2.Which of the following statements best describes the relationship between short-term and long-term financial plans?

A) Long-term financial plans are more accurate than short-term plans.

B) Long-term financial plans generally reflect seasonal factors, while short-term plans ignore these factors.

C) A long-term financial plan involves preparing a detailed cash budget.

D) Short-term financial plans detail the coming fiscal year’s resus projected by long-term financial planning.

Financial Accounting