In considering equity and debt financing,which of the following statements is true?
A)Compared to equity financing,debt is a more expensive source of funding.
B)Interest and dividends payments are required to be made by the issuing corporation.
C)In general,the higher the proportion of total debt-to-equity ratio,the greater the likelihood the firm will have difficulty in meeting its obligations in some future period.
D)Most firms prefer to have no debt and rely on equity financing.

Question

Quizplus · Accepted Answer

C) This statement is true because a higher debt-to-equity ratio indicates that a company is funding its operations more through debt than through equity. This can make it harder for the company to meet its financial obligations, especially in periods of financial downturn or lower earnings, as it has to make interest payments regardless of its profit levels.

In Considering Equity and Debt Financing,which of the Following Statements