What is the primary reason for the higher cost of finance from shareholders than debt? a. Shareholders receive dividends every year, so the company has to factor this in, whereas interest payments on loans are optional. b. The assumption in the question is incorrect - banks always charge businesses more than shareholders. c. Shareholders are greedy d. Shareholders take on more risk and therefore require a higher return on their investment
What is the primary reason for the higher cost of finance from shareholders than debt? a. Shareholders receive dividends every year, so the company has to factor this in, whereas interest payments on loans are optional. b. The assumption in the question is incorrect - banks always charge businesses more than shareholders. c. Shareholders are greedy d. Shareholders take on more risk and therefore require a higher return on their investment
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter21: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 4MC: David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing....
Related questions
Question
2. What is the primary reason for the higher cost of finance from shareholders than debt?
a. Shareholders receive dividends every year, so the company has to factor this in, whereas interest payments on loans are optional.
b. The assumption in the question is incorrect - banks always charge businesses more than shareholders.
c. Shareholders are greedy
d. Shareholders take on more risk and therefore require a higher return on their investment
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning