Asked by Ferhat Butun on Jun 09, 2024
Verified
Which of the following statements is not true?
A) Debt may be the only available source of funds to a company.
B) Historically, debt financing has a higher cost than equity financing.
C) Debt financing offers an income tax advantage.
D) Debt does not dilute ownership interests.
Debt Financing
A method of raising capital through borrowing, which involves taking loans or issuing bonds.
Equity Financing
A method of raising capital through the sale of shares in a company, giving investors ownership interests.
Ownership Interests
Pertains to rights or claims individuals or entities have in an asset, potentially entitling them to income generated by the asset and a share in the asset's liquidation proceeds.
- Appreciate the rationale for issuing long-term liabilities and their ensuing advantages.
Verified Answer
SS
Sarah StewartJun 10, 2024
Final Answer :
B
Explanation :
Historically, equity financing has a higher cost than debt financing. This is because equity investors expect a higher rate of return to compensate for the higher risk they take on.
Learning Objectives
- Appreciate the rationale for issuing long-term liabilities and their ensuing advantages.