True/False and Explain: Josephine says that firms which obtain debt financing by posting collateral, face a lower cost of debt than firms that try to obtain debt without posting collateral.
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- 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 companyTrue or false?:1. From a creditor's point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.Financing with Debt Versus Equity. It is commonly understood that the cost of financing a business’sasset purchases with debt is cheaper than financing those purchases with equity. Discuss why debt financing is cheaper than equity financing. Is there a set of circumstances when the cost of debt financing would exceed the cost of equity financing? If so, when?
- Many types of debt including auto loans, student loans and credit debt are securitized. The practice of securitization helps provide extra funding to those markets and reduces the risk of lending by pooling the debt. a) true b) falseCritique this statement: “The use of debt financing lowers the net income of the firm, and hence debt financing should be used only as a last resort.”Debt financing is typically less expensive than equity financing and is often easier to obtain. Is this true? Explain.
- (1) How does getting a secured loan using accounts receivable as collateral differ from factoring? (2) Why would lenders want to see that a business already has some level of capitalization before giving it access to more capital by means of a loan?Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.If a firm’s ROE is low and management wants to improve it, explain how using more debtmight help.
- Why is it that oftentimes banks refuse to lend to many borrowers even though they offer high interest rates? To reduce the exposure to diversification risk. To reduce the exposure to interest rate risk. To reduce the exposure to credit risk. To reduce transactions costs To reduce the free-rider problem.Banks tend to focus their loans in one industry so that they can specialize on that industry and reduce the credit risk of their loan portfolio. Group of answer choices: True False(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?