What is the primary reason for the higher cost of finance from shareholders than debt? a. Shareholders receive dividends every year, so the company has to factor this in, whereas interest payments on loans are optional. b. The assumption in the question is incorrect - banks always charge businesses more than shareholders. c. Shareholders are greedy d. Shareholders take on more risk and therefore require a higher return on their investment
What is the primary reason for the higher cost of finance from shareholders than debt? a. Shareholders receive dividends every year, so the company has to factor this in, whereas interest payments on loans are optional. b. The assumption in the question is incorrect - banks always charge businesses more than shareholders. c. Shareholders are greedy d. Shareholders take on more risk and therefore require a higher return on their investment
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 33P
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2. What is the primary reason for the higher cost of finance from shareholders than debt?
a. Shareholders receive dividends every year, so the company has to factor this in, whereas interest payments on loans are optional.
b. The assumption in the question is incorrect - banks always charge businesses more than shareholders.
c. Shareholders are greedy
d. Shareholders take on more risk and therefore require a higher return on their investment
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