- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 4. Optimal Capital Structure
CFA Practice Question
Managers might choose to issue debt to signal the prospects of the firm because
B. issuing more equity would dilute EPS.
C. debt issuance is a costly signal that must be supported by sufficient levels of earnings.
A. the floatation costs on debt are less than equity.
B. issuing more equity would dilute EPS.
C. debt issuance is a costly signal that must be supported by sufficient levels of earnings.
Correct Answer: C
Debt issuance is a costly signal that must be supported by sufficient earnings.
User Contributed Comments 2
| User | Comment |
|---|---|
| phillip | B is a correct statement but not a correct answer here: Issuing more equity would dilute EPS, but it is not the reason why managers want to issue debt to signal the prospects of the firm. |
| REITboy | Good comment, philip. |