which of the following is not an advantage of equity rather than debt financing a. lower cost b. lower risk of insolvency c. lower funding risks d. no legal liability to pay dividends e. no requirement to repay capital

which of the following is not an advantage of equity rather than debt financing a. lower cost b. lower risk of insolvency c. lower funding risks d. no legal liability to pay dividends e. no requirement to repay capital

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 20MC: The difference between equity financing and debt financing is that A. equity financing involves...

See similar textbooks

Related questions

Q: How does a firm's use of short-term debt as opposed to long-term debt subject the firm to a greater…

A: The given statement is that short-term debt leads to illiquidity as opposed to long-term debt. The…

Q: In evaluating the cost of debt where a company has several issues outstanding should the…

A: No, while calculating the cost of borrowing when companies have several obligations outstanding we…

Q: Regarding MM 1958 proposition, a firm's value is not influenced by O interest rate paid on debt.…

A: Modigliani-Miller's approach is considered to be one of the most important theorems in corporate…

Q: The use of fair value to account for debt investments allows for more relevance of accounting…

A: Step 1 Fair valuation concept is universally accepted by all of the worldwide regulating accounting…

Q: Is there a consequence for reported profit or loss if a particular financial instrument, for…

A: Equity Stock represents the ownership in the company. Equity shareholders have the residual claim on…

Q: Financing with Debt Versus Equity. It is commonly understood that the cost of financing a…

A: For any entity, there are two ways of raising funds: Equity Financing and Debt Financing. Companies…

Q: The cost of capital includes the cost of equity, the cost of long-term debt and the cost of accounts…

A: The capital of a corporation is the amount of money or funds that a corporation uses for operating…

Q: Financial leverage measures how much earnings per share (and ROE) respond to changes in debt. True…

A: A firm can finance its business operations through various sources of capital such as debt and…

Q: The negative working capital occurs when the اخترأحد الخيارات a. None of the options b. Current…

A: “Since you have posted a many questions, we will solve first question for you. To get the remaining…

Q: Which of the statements are not correct Select one: a. Profits refers to earnings before Interest…

A: Earnings before interest and tax is the profitability indicator for a company that is also referred…

Q: What factors might lead a company to gain additional fundsthrough debt financing rather than through…

A: Company mainly has two type of Sources of Fund. 1. Equity Fund 2. Debt Fund.

Q: Critique this statement: “The use of debt financing lowers the net income of the firm, and hence…

A: The statement has two parts:The use of debt financing lowers the net income of the firm,Hence debt…

Q: Which statement is not true?

A: In the above question, there are four statements; we must identify which of the four statements is…

Q: Explain how continuous reliance on debt financing will affect the return to the equity holders or…

A: Financing is the method through which a corporation acquires capital or funds from the financial…

Q: a. Is the investment vehicle a business? Justify your answer in no more than five (5) sentences. b.…

A: An investment vehicle is the created and financed with a debt instrument that are held by an…

Q: Why does have equity habve a higher vost of capital compared to debt?

A: Reasons why equity have higher cost of capital than debt is 1) Debt has tax advantages I,e tax…

Q: High degree of financial leverage means Oa High debt proportion Ob Lower dobt…

A: Degree of financial leverage (DFL) is given by following relation between EBIT and interest.

Q: Briefly explain the over-investment problem from the perspective of the agency costs between…

A: Firms with both the debt and equity in the capital structure often face agency conflicts between…

Q: Which of the following would NOT improve the current ratio? Borrow short term to finance additional…

A: Introduction:- Current ratio:- It is a short is liquidity ratio. It measures liquidity position of…

Q: If a bank wants to avoid volatility in its regulatory capital, which investment classification would…

A: Answer: If banks want to volatility in regulatory capital, wanting banking organizations are likely…

Q: In accounting, we usually use historical cost (i.e. original price) on the balance sheet. However,…

A: Investment in equity securities is the current or non-current investment made by the firm in the…

Q: Financial risk is the additional risk that stockholders face as a result of using debt, as opposed…

A: Risk denotes the variability in return. When the return fluctuates, then the risk of the security…

Q: A disadvantage of equity financing

A: Equity financing refers to raising finances in the form of selling equity shares of the concerned…

Q: explain the effect of additional debt on the weighted average cost of capital (WACC)?

A: When the company takes on additional date in its capital structure then it increases the risk of…

Q: ders and debtholders differ in their claim of the firm’s cash flows? How does such a claim…

A: Introduction : In simple words, stock refers to the equity claim in a company under which the holder…

Q: Companies

A: INTRODUCTION: COMPANIES RAISE THEIR FUNDS BY WAY OF TWO SOURCES: OWNED FUNDS(issuing shares ).…

Q: Which of the following is true about debt and equity? Question 25 options: Debt returns are…

A: "DEBT" refers to the borrowings money to be repaid, plus interest. While "EQUITY" refers to raising…

Q: 4. What is the result of repaying debt? (Ignoring changes in the cost of capital) A B C D A decrease…

A: 1)Debt is a liability.Repayment of debt involves reduction of liability and reduction of cash. 2)…

Q: Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative…

A: Insolvency Risk: Insolvency risk is a probability that an enterprise cannot satisfy its debt…

Q: Evaluate the effect of gearing on cost of capital and firm value taking into consideration the…

A: The term “gearing” can be defined as the tool to gauge company’s financial leverage by emphasizing…

Q: State two reasons why a company might prefer to issue debt capital rather than equity capital.

A: A company can raise capital either through equity by issuing common stock or through debt by issuing…

Q: The cost of retained earnings is less than the cost of ordinary shares because of *

A: Issuance cost: This is incremental cost directly associated with issue of ordinary shares. This cost…

Q: Following are advantages of Debt financing, except a. Does not dilute owners' control b. Interest is…

A: The company acquires funds from various providers of capital to do business. It tries to acquire…

Q: The use of fair value to account for debt investments allows for more relevance of accounting…

A: It helps in assessing the value at actual worth in the market.

Q: Which of the following is false regarding the secondary market? a) Secondary markets provide the…

A: Secondary markets are financial markets where investors and traders can purchase and sell securities…

Q: (1) What factors might lead a company to gainadditional funds through debt financing rather…

A: Financial Activities: Financial exercises are exercises that organizations embrace to assist with…

Q: Why are claims on income discretionary with equityfinancing but nondiscretionary with debt…

A: Liability: In monetary bookkeeping, a liability is characterized as the future penances of financial…

Q: Which of the following statements about "avoidable interest" is false? it is computed only on…

A: The avoidable interest measn the cost that is incurred to construct the long-term assets. It is also…

Q: The difference between equity financing and debt financing is that a. equity financing involves…

A: Equity refers to the value representing the shareholders of the company. It is the amount which…

Q: Which is true of equity financing? It has no fixed maturity date It provides a tax shield It…

A: Equity financing is method of raising finance by issue of equity shares. It is one form of source of…

Q: The building blocks of financial statement analysis does not include: a. Market expectations.…

A: Financial statements are those statements which are prepared at the end of the period in order to…

Q: 2. Which of the following correctly matches the classification of the debt investment with its…

A: IAS 32 and IAS 39, the previous IFRS financial instruments accounting standards, classified debt…

Question

which of the following is not an advantage of equity rather than debt financing

a. lower cost

b. lower risk of insolvency

c. lower funding risks

d. no legal liability to pay dividends

e. no requirement to repay capital.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Introduction

VIEW

Step 2 Explanation

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

It is more provident that equity financing is more favored because of the ultimate risks associated within the cost of accumulating debt in terms of paying principal plus interest. Group of answer choices True False
What is the most obvious difference between debt and equity financing? a. Principal and interest must be repaid for debt financing. b. Dividend payments are mandatory. c. Debt financing can result in loss of control. d. Equity financing is revenue and thus taxable
(1) What factors might lead a company to gainadditional funds through debt financing rather thanthrough equity financing? (2) Why does consumerdebt have a more negative connotation than businessdebt?
There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the company
Which of these is a main characteristic of debt capital?(a) Investors in debt participate in the ownership of the firm.(b) Investors in debt are paid interest.(c) Debt is more risky for the investor and less risky for the firm.(d) If dividends are not paid, this can lead to foreclosure, legal proceeding and financial distress.
Between equity and debt capital a. Debt is safer than equity b. Equity is riskier than debt c. Both debt and equity are equally risky d. No option is correct
Choose the best answer Between equity and debt capital a.Equity is riskier than debt b.Debt is safer than equity c.Both debt and equity are equally risky d.No option is correct
When the profitability of total capital (total assets) is positive, which proposal does it agree with most? The net result may be negative Shareholders may have benefited from the presence of borrowed funds Shareholders may have been harmed by the presence of borrowed funds all of the above
Between equity and debt capital a.Both debt and equity are equally risky b.Equity is riskier than debt c.No option is correct d.Debt is safer than equity
The difference between equity financing and debt financing is that Group of answer choices A. equity financing involves borrowing money. B. debt financing involves selling part of the company. C. debt financing means the company has no debt. D. equity financing involves selling part of the company.
In accounting, we usually use historical cost (i.e. original price) on the balance sheet. However, for some debt/equity investments, we adjust to fair market value. Explain to me why some debt/equity investments get adjusted to fair market value while other investments do not.
Q.Briefly explain the over-investment problem from the perspective of the agency costs between debtholders and equity holders.