Question
In: Finance
How can high-risk, low-return-on-assets industries such as airlines attract capital?
How can high-risk, low-return-on-assets industries such as airlines attract capital?
Solutions
Expert Solution
High risk and low return on asset industries like airlines can be attracting capital through issuance of new shares in the market because new shares in the market will not be creating any kind of fixed obligation on the company and issuance of new shares will also mean that the company is raising the equity and it is not obligated for payment of the dividend so equity capital will be helping the company in order to manage with high risk and low return on asset at the current scenario.
I will not be advocating for issuance of debt capital because it can be seen that the company is having with very high risk and it is also having a low rate of return so debt capital are generally demanding higher rate of return for higher risk because when there will be junk bonds issued by any Company, the yield on these bonds will be higher because the expectation of the investors will be higher due to higher risk so I will be advocating for raising of capital through issuance of equity capital
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