Multiple choice

What is the benefit to shareholders of debt financing over equity financing?

  1. it minimises risk

  2. return on shareholders equity is likely to be higher

  3. repayments can be postponed in economic recessions

  4. loans are guaranteed by the australian securities exchange
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debt financing can increase the return on equity for shareholders through financial leverage, as the cost of debt is often lower than the return generated by the assets it funds.

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