Which of the following statements is true? Group of answer choices If a firm has a...

Which of the following statements is true?

Group of answer choices

If a firm has a project that management believes will be very successful, management is more likely to finance the project with debt financing than with new equity

Issuing new equity is a positive signal to investors

Issuing debt is a negative signal to investors

If a firm has a project that management believes will be very successful, management is more likely to finance the project with equity than with debt

Expert Solution

first statement is true.

If a firm has a project that management believes will be very successful, management is more likely to finance the project with debt financing than with new equity

because the cost of equity is greater than cost of debt. issuing new debt indicate sound financing ability to repay interest.

second statement is not true.

Issuing new equity is a negative signal to investors because its indicate stock is overvalued.

third statement is not true.

Issuing debt is a positive signal to investors, its show the ability to repay interest, also indicate positive cash flow and sound financing.

forth statement is not true.

If a firm has a project that management believes will be very successful, management is more likely to finance the project with debt than with equity , debt indicate positive signal to investor about cash flow and ability to generate cash flow from project.

right way of financing is first internal capital then debt and then equity

jeff jeffy answered 3 months ago

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