Which of the Following Is Usually Cited as a Disadvantage

question 5

Multiple Choice

Which of the following is usually cited as a disadvantage of issuing new common stock as a method of financing?

• A)Common stock does not have a maturity date, thus it is an open-end commitment of the firm's earnings.
• B)Since sale of common stock increases the number of owners and the amount of capital at risk, the firm's bond rating is usually negatively affected and its cost of debt rises.
• C)If the firm currently has more equity than its optimal capital structure dictates and it issues more equity, then the average cost of capital will most likely rise.
• D)Common stock is not an attractive option if the firm seeks to increase its reserve borrowing capacity.

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Definitions:

Beak Size

The physical measurement of the length or depth of a bird's beak, which can influence its ability to feed and mate.

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