Which of the following statements is true?
A) The use of debt may lead to financial distress and bankruptcy, thus firms that sell expensive, durable products that may have warranties and ongoing service requirements tend to use less debt.
B) The use of debt may lead to financial distress and bankruptcy, thus firms that sell expensive, durable products that may have warranties and ongoing service requirements tend to use more debt.
C) Companies with a large proportion of tangible assets should be more willing to use debt than firms with mostly intangible assets.
D) Companies with a large proportion of tangible assets should be less willing to use debt than firms with mostly intangible assets.
E) Both (a) and (c)

Question

Quizplus · Accepted Answer

A) is true because firms selling expensive, durable products with warranties and service requirements face higher risks and potential costs in case of financial distress, making them more cautious about using debt. C) is true because tangible assets can serve as collateral for debt, making lenders more willing to provide financing, thus companies with tangible assets are more inclined to use debt.

Which of the Following Statements Is True