If a Eugenie Finances Her Firm with Equity Rather Than

question 46

Multiple Choice

If a Eugenie finances her firm with equity rather than debt,her net income could potentially be greater because

• A)equity financing almost always leads to better firm performance than debt financing.
• B)the terms of equity financing are more stable than the terms of debt financing.
• C)equity financing has a positive impact on asset selection.
• D)there is no interest expense.

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Definitions:

Priority

The order in which rights, obligations, or claims are ranked or considered, often in a legal context.

Default

Failure to fulfill a duty or obligation, typically in the context of financial agreements such as failing to make loan payments.

Obtaining Control

The act of gaining the power or authority to manage or direct something or someone.

Collateral

Assets pledged by a borrower to secure a loan or credit, which the lender may seize if the borrower fails to repay the loan.