Question

Select one reason a company's capital structure may include more equity than debt.

a. Relying too heavily on debt can increase the interest rate that a company must pay on its debt.
b. Taking on more equity means that a company will be more leveraged.
c. Equity has significant tax advantages that debt does not.
d. Too much debt will decrease a company's volatility.

Answer 1

Answer:

a. Relying too heavily on debt can increase the interest rate that a company must pay on its debt.

Explanation:

It is to avoid the financial risk that comes with debt. Financial risk is the risk of default in payment of Interest charges that comes with debt instruments. This is because debt instruments carry a financial obligation to pay Interest whether or not the company is performing well