Question

Which of the following statements is NOT CORRECT? a. Accruals are "free" in the sense that no explicit interest is paid on these funds. b. A conservative approach to working capital management will result in most, if not all, permanent current operating assets being financed with long-term capital. c. Bank loans generally carry a higher interest rate than commercial paper. d. Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. e. The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt.

Answer 1

Answer: d. Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.

Explanation:

Commercial Paper refers to a short term debt instrument that large Corporations and banks can issue to enable them pay off short term obligations.

While Commercial Paper does not need to be registered with the SEC if it falls under a period of 9 months for it to mature, it is not for every institution.

Only large Institutions and Banks can afford to issue commercial Paper due to risk concerns and so not all firms can issue Commercial Paper.