- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 4. Optimal Capital Structure
CFA Practice Question
When management chooses to raise new capital through the issuance of debt instead of equity, they might be signaling that they think:
B. the stock is over-valued.
C. the stock is under-valued.
A. the debt is over-valued.
B. the stock is over-valued.
C. the stock is under-valued.
Correct Answer: C
Management would likely be sending a signal that the stock is undervalued.
User Contributed Comments 3
| User | Comment |
|---|---|
| sarath | MORE DEBT => MGMT THINKS UNDER-VALUED STOCK .. |
| katybo | you don't want to share profits...so issue debt rather than equity |
| ericczhang | If you think your stock was overvalued, you might actually want to share profits that other people pay too much to get a piece of. |