[strongryne]

I feel like an idiot. I’ve understood all of the BEC material so far, but can’t seem to wrap my head around the question below.

The benefits of debt financing over equity financing are likely to be highest in which of the following situations?

Essentially the answer is that you would prefer higher marginal interest rates over lower marginal interest rates. I know that interest is tax-deductible, but wouldn’t it be more beneficial to have a lower rate therefore paying less interest I know there is an error in my reasoning with this, but can’t wrap my head around it.

Regards,
Ryne

[livealittle]

It appears at first glance that you are looking at it from the company getting the financing's standpoint and maybe they are asking from the investor/one holding the debt's standpoint?

if I buy shares, (equity financing for the company selling the shares) then my return is pretty low

if I buy bonds, (debt financing for the company selling the bonds) then my return has a higher marginal interest rate

guessing, but that's what I think

maybe others can weigh in

BEC - 8/8/16
REG - 66, 77
AUD - 81
FAR - 9/8/16

[Author]

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