Generating capital by means of debt financing:
A) Involves borrowing money, either from a bank loan or from the use of corporate bonds.
B) Means that the firm borrowing the money will have to pay interest charges.
C) May be worth it if the borrowed money is used to implement a marketing plan that earns a return greater than the cost of borrowing the money.
D) Means that the firm will have to put up some of its assets as a loan guarantee.
E) All of the above.

Question

Quizplus · Accepted Answer

All of the options listed are true statements about debt financing. Companies can borrow money from a bank or issue corporate bonds to generate capital, but will have to pay back the loan amount with interest. If the borrowed money is used effectively, such as for investing in a marketing plan that generates a higher return than the cost of borrowing, then it may be worth it. However, the firm may have to put up some of its assets, such as equipment or property, as collateral in case they are unable to repay the loan.

Generating Capital by Means of Debt Financing