If company earnings give a rate of return less than the cost of debt,then it may be advantageous for the firm to be ________.
A)all-equity
B)owned mostly by debt holders
C)half owned by debt holders
D)one-third owned by equity holders

Question

Quizplus · Accepted Answer

If the rate of return on company earnings is less than the cost of debt, it means that the company is not generating enough profits to cover its debt obligations. In such a scenario, if the firm is all-equity, it won't have any debt to service, which would be advantageous. This would also mean that the company would have to rely entirely on equity investors for funding, which can be a challenge. However, it may be the best option for the company to avoid defaulting on its debt obligations.

If Company Earnings Give a Rate of Return Less Than