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:

Negative

Characterized by the absence rather than the presence of distinguishing qualities, or expressing denial, refusal, or prohibition.

Salience

Being obvious or standing out.

Stereotype Formation

The process of creating oversimplified and generalized views about groups of people based on limited information.

Realistic Conflict Theory

Realistic conflict theory suggests that intergroup conflict, hostility, and aggression arise from competition over limited resources or conflicting goals.