Why Is Common Stock Financing Lower Risk to the Firm

question 14

Multiple Choice

Why is common stock financing lower risk to the firm than financing with bonds?

• A)The lack of a fixed dividend provides the firm greater flexibility versus the interest cost of a bond.
• B)Common stock typically has a shorter maturity than bonds.
• C)Although common stock dividends are typically fixed, they are usually lower than the interest on bonds.
• D)The sinking fund feature on common stock lowers its risk.

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