In considering equity and debt financing, which of the following statements is generally true?
A)The lower the measure of the long-term debt-to-equity ratio, the greater the likelihood the company will have difficulty in meeting its obligation in some future period.
B)Interest and dividend payments are required to be made by the issuing company.
C)The higher the measure of the debt-to-equity ratio, the greater the likelihood the company will have difficulty in meeting its obligation in some future period.
D)Most companies prefer to have no debt and rely exclusively on equity financing.

Question

Quizplus · Accepted Answer

The higher the debt-to-equity ratio, the more leveraged a company is, indicating a higher level of debt relative to equity. This can make it more challenging for the company to meet its financial obligations, especially in periods of financial downturn or lower earnings, as it has to service its debt through interest payments.

In Considering Equity and Debt Financing, Which of the Following