What effect does financing with debt have on a company?
A)It will increase financial risk.
B)It will decrease the potential return for shareholders.
C)It will create a requirement to pay dividends.
D)It will decrease turnover.

Question

Quizplus · Accepted Answer

Financing with debt increases the financial risk for a company because the company must make regular interest payments and ultimately repay the principal amount. If the company is unable to make these payments, it may default on the debt and suffer negative consequences such as reduced creditworthiness and potentially bankruptcy. This increased risk can also negatively impact the company's stock price and decrease the potential return for shareholders.

What Effect Does Financing with Debt Have on a Company