The existence of asymmetric (insider) information makes it desirable for firms to: maintain a reserve borrowing capacity by using less debt than is optimal. use less equity than optimal so that they can issue stock whenever they need. always maintain an optimal mix of debt and equity.

The existence of asymmetric (insider) information makes it desirable for firms to: maintain a reserve borrowing capacity by using less debt than is optimal. use less equity than optimal so that they can issue stock whenever they need. always maintain an optimal mix of debt and equity.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 2QE

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Question

The existence of asymmetric (insider) information makes it desirable for firms to:

	maintain a reserve borrowing capacity by using less debt than is optimal.
	use less equity than optimal so that they can issue stock whenever they need.
	always maintain an optimal mix of debt and equity.

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