Company Funding Quiz

Why might a firm choose debt over equity financing?

• To dilute ownership

• Because debt is not repayable

• To maintain control over the company

• To increase tax obligations

• Because it raises stock prices

What is a disadvantage of using too much debt?

• Reduces asset turnover

• Increases retained earnings

• Raises financial risk and interest obligations

• Guarantees higher returns

• Strengthens shareholder control

When analyzing a company’s capital structure, what should be prioritized?

• Employee count

• Fixed asset age

• Balance between debt and equity

• Sales volume

• CEO reputation

Why is retained earnings considered an internal financing method?

• It is borrowed from shareholders

• It involves issuing new stock

• It is reinvested company profit

• It comes from bond sales

• It involves external approval

What role does the cost of capital play in financing decisions?

• It determines market share

• It sets dividend policy

• It helps compare financing alternatives

• It reduces taxes

• It measures inflation

Which of the following is an example of equity financing?

• Issuing corporate bonds

• Taking a bank loan

• Selling new company shares

• Leasing equipment

• Using retained earnings

What does a high debt-to-equity ratio imply?

• Conservative financial strategy

• High reliance on equity

• Greater leverage and risk

• Lower borrowing

• Improved credit rating

Which factor increases the attractiveness of debt financing?

• Dividend requirements

• Fixed repayment flexibility

• Tax deductibility of interest

• Ownership dilution

• Decreased credit score

A firm chooses to issue convertible bonds. Why?

• To avoid dividends

• To attract equity-oriented investors with bond safety

• To increase short-term expenses

• To reduce retained earnings

• To hide leverage

Why do companies sometimes prefer short-term debt?

• It increases long-term liability

• It comes with higher rates

• It offers more flexibility and lower interest costs

• It is tax-free

• It dilutes ownership