CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

Managers might choose to issue debt to signal the prospects of the firm because

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.
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