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Explain the meaning of, “The use of current liabilities as opposed to long-term debt exposes the firm to a greater risk of illiquidity”.

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1) What are the advantages and limitations generally associated with the use of short-term debt?

2) Explain the meaning of, “The use of current liabilities as opposed to long-term debt exposes the firm to a greater risk of illiquidity”.

3) Explain how changes in the interest rate can impact the firm’s working capital policy.