Equity financing is preferred for unrelated diversification while debt financing is preferred for related diversification.

Question

Quizplus · Accepted Answer

This statement is incorrect. There is no specific preference for equity or debt financing based on whether the diversification is related or unrelated. The choice between equity and debt financing is subjective and based on various factors such as the firm's financial goals, risk appetite, creditworthiness, cost of capital, and so on. Both equity and debt financing can be used for related or unrelated diversification strategies depending on the firm's circumstances.

Equity Financing Is Preferred for Unrelated Diversification While Debt Financing