The Use of Debt Financing

question 45

Multiple Choice

The use of debt financing:

• A) may cause a manager to take on riskier projects in order to make interest payments.
• B) is more expensive than issuing equity due to the use of covenants.
• C) allows managers to make discretionary interest payments.
• D) limits the ability of managers to waste shareholder money.

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Definitions:

Dishonored

Refers to a financial instrument, such as a check or promissory note, that has been refused payment when presented.

Landlord

A person who owns real property and who rents or leases it to someone else. Also called lessor.

Expedited Credit

A banking service that provides faster funds availability to the depositor.