When a firm conducts a seasoned equity offering and uses the proceeds to purchase a portion of the firm's outstanding debt,then the firm's
A) financial risk increases.
B) financial risk decreases.
C) business risk increases.
D) business risk decreases.

Question

Quizplus · Accepted Answer

By using the proceeds from a seasoned equity offering to purchase a portion of the firm's outstanding debt, the firm is essentially reducing its overall debt and the associated interest payments. As a result, the firm's financial risk decreases because it has less debt to service and is therefore less susceptible to changes in interest rates or credit market conditions. However, this does not necessarily affect the firm's business risk, which is related to the inherent uncertainties and challenges in its industry or market.

When a Firm Conducts a Seasoned Equity Offering and Uses