Debt May Be the Preferred Form of External Financing for Many

question 105

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 signal.

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Definitions:

Production Departments

Specific areas or units within a manufacturing facility where different stages of the production process are carried out.

Budgeted Amounts

Estimated financial figures used for planning during a specific period, including income, expenses, and capital expenditures.

Fluctuations

Variations or changes in level, degree, or value that occur over time.

Responsibility Centres

Sections or departments within an organization, each overseen by a manager who is accountable for its performance and financial outcomes.