fixed cost bearing security should be mixed with equity when the rate of earning is ______ the rate of return of the company
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Fixed cost bearing security should be mixed with equity when the rate of earning is higher than the rate of return of the company
Explanation:
- A company has two ways of sourcing its funds from either through equity or through debt (which is also known as fixed cost bearing security).
- In case of debt, the company is required to pay a fixed amt. of interest on debt irrespective of the earning of the co. whereas in case of equity, it is required to pay dividends out of the profits left after deducting all the fixed obligations, expenses and taxes.
- Therefore, a company should opt for debt only when its earning are more than the cost of debt.
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