Mini Case:22 - 24seasonal demands with permanent capital. This position is a very safe one. Therefore, an aggressive financing policy uses the greatest amount of short-term debt, while the conservative policy uses the least. The maturity matching policy falls between these two policies. r. What are the advantages and disadvantages of using short-term debt as a source of financing?Answer:Although using short-term credit is generally riskier than using long-term credit, short-term credit does have some significant advantages. A short-term loan can be obtained much faster than long-term credit. Lenders insist on a more thorough financial examination before extending long-term credit. If a firm’s needs for funds are seasonal or cyclical, it may not want to commit to long-term debt because: (1) flotation costs are generally high for long-term debt but trivial for short-term debt; (2) prepayment penalties with long-term debt can be expensive. Short-term debt
This is the end of the preview.
access the rest of the document.