The risk encountered by a firm when raising funds by issuing debt is greater than the risk from issuing common stock.

Name: The risk encountered by a firm when raising funds by issuing debt is greater than the risk from issuing common stock.
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Question

Quizplus · Accepted Answer

Issuing debt increases a firm's financial leverage and fixed obligations (interest payments), which can amplify the risk of default during financial downturns, whereas issuing common stock does not require fixed payments and dilutes ownership instead.

The Risk Encountered by a Firm When Raising Funds by Issuing