The Lottadoe Corporation is considering financing some new long-term investments by issuing additional long-term debt. One disadvantage of this approach is that it locks the firm into making fixed payments that could create cash flow problems if the firm's earnings are lower than expected.

Question

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This statement is true as issuing additional long-term debt means the firm will have to make fixed payments even if their earnings are lower than expected, which could lead to cash flow problems.

The Lottadoe Corporation Is Considering Financing Some New Long-Term Investments