Relying Primarily on Debt Financing Is Very Dangerous for a Company

question 21

Multiple Choice

Relying primarily on debt financing is very dangerous for a company because ________.

• A) Creditors can force a company into bankruptcy or take over company property
• B) Creditors can sabotage the business by refusing to lend it money
• C) Creditors can gain a majority share of the company and take it over
• D) All of the above
• E) None of the above

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Definitions:

Accounts Receivable Period

The mean amount of time required for a company to receive payments due from its clients.

Sales

The total amount of a company's revenues earned from selling its goods or services.

Collect

Refers to the act of gathering or accumulating items or amounts, often used in the context of collecting payments or data.

Net Cash Flow

Net cash flow is the difference between a company's cash inflows and outflows over a specific period, providing insight into the company's liquidity and financial health.