Relying Primarily on Debt Financing Is Very Dangerous for a Company

question 35

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) it can be very stressful for the owners, thus causing them to make mistakes

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, demonstrating the goods' sensitivity to price changes.

Quantity

The amount or number of a material or immaterial good considered as a unit or total.

Perfectly Inelastic

Describing demand that is entirely unresponsive to price changes, represented by a vertical demand curve.

Oysters

Marine mollusks known for their hard shells and edible flesh, often considered a delicacy.