Camilla calls a meeting with the other major stock holders of the company who make up the board of directors.Camilla wants to finance a marketing strategy by securing a long-term note with the company's bank as opposed to selling more shares.What will this do to the financial risk of the company?

Question

Quizplus · Accepted Answer

Securing a long-term note increases the company's debt, which in turn raises the financial risk. This is because the company is obligated to make interest payments regardless of its financial situation, and failure to do so can lead to bankruptcy. Selling shares, on the other hand, does not require repayment and does not increase financial risk in the same way.

Camilla Calls a Meeting with the Other Major Stock Holders