Heavy use of long-term debt can be of benefit to a firm, although it adds to the firm's overall level of risk.

Question

Quizplus · Accepted Answer

Heavy use of long-term debt can provide a firm with access to larger amounts of capital at lower interest rates compared to equity financing. This can lead to increased profitability and growth opportunities. However, it also adds to the firm's overall level of risk as the firm must make regular interest payments and eventually repay the principal amount. If the firm is unable to meet its debt obligations, it may face financial distress or even bankruptcy. Therefore, while long-term debt can provide benefits, it should be managed carefully to avoid excessive levels of risk.

Heavy Use of Long-Term Debt Can Be of Benefit to a Firm