Question

Under the amount of long term and short term financing to be used, the current liabilities cost is ______ than long term liabilities.

• A. more
• B. less
• C. equal
• D. nil

Answer 1

The correct option is B less

Financial management involves decisions about the proportion of long term and short term finance. An organisation wanting to be more liquid would raise relatively more amount on long term basis. There is a choice between liquidity and profitability. The underlying assumption here is that current liabilities cost less than long term liabilities.