Which statement is TRUE?

A. Debt is generally a safer source of capital than common stock.
B. The higher level of riskiness of assets, the more likely the company will rely on equity financing.
C. Assets that are unique and highly specialized are good candidates for collateral.

Correct Answer: B

A is false. It depends. For an investor it is a safer investment, but for a company it's riskier as having more debt increases the probability of financial distress.

B is true. Servicing debt obligations is hard if a company does not have predictable operating cash flows.

C is false. Such assets are not good collateral for asset-backed bonds.