Question

Which of the following statements about
capital structure are correct? Select ALL correct
answers
Having too little debt may increase the risk of
default in repayment
A company should always finance its business
using as much debt as possible in order to
optimize the capital structure,
Having too much equity may dilute earnings
and the value of the original investors
A company needs to consider the current
economic climate when making decisions on
debt and equity proportions​

Answer 1

Answer:

A company should always finance it's business using as much debt as possible in order to optimize the capital structure

Answer 2

Answer:

The correct answer to the question is: Having too little debt may increase the risk of default in repayment.

Explanation:

Capital structure:

It refers to the unique mixture of debt and equity used to finance a company’s assets and operations. From a corporate point of view, equity represents a more expensive, permanent source of capital with more financial flexibility. Debt, on the other hand, represents a low-cost, finite-to-maturity capital source that legally binds the company to fix, promised cash outflows with the need to refinance at a future date without knowing the cost.

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