Debt May Be the Preferred Form of External Financing for Many

question 7

Multiple Choice

Debt may be the preferred form of external financing for many firms because:

• A)Most firms already have too much equity
• B)Tax rates on equity are lower
• C)Debt will not adversely affect the firm's financial ratios
• D)Equity issuance is considered by investors to be a negative sign

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been deducted from total revenue.

Revenue

The income that a business receives from its normal business activities, usually from the sale of goods and services to customers.

Costs Of Production

The total expenses incurred in manufacturing a product or delivering a service.

Venture Capital Funds

Pools of capital that are used to invest in high-growth, high-potential startup companies in exchange for equity stakes.