Munschausen is a German-based appliance company that is preparing to begin international operations, wherein it plans to open several production facilities and sales centres abroad. The company needs a substantial amount of capital to start its international operations and needs to decide whether it should pursue debt financing by acquiring loans, or whether it can get equity financing from investors. Which of the following, if true, would weaken the case for Munschausen's seeking to acquire capital by debt financing?

Question

Quizplus · Accepted Answer

Seeking debt financing would require Munschausen to make regular payments of principal and interest, which could be difficult to manage if the company will grow its business only slowly in the first several years. Therefore, if Munschausen's growth is expected to be slow, seeking equity financing might be a better option as there will not be pressure to make regular payments to lenders. The other options are not relevant to the decision of whether to pursue debt or equity financing.

Munschausen Is a German-Based Appliance Company That Is Preparing to Begin