alleryStart learning →Why does heavy debt raise a firm's bankruptcy risk?
ADividends rise automatically
BFixed interest must always be paid
CTax relief is withdrawn at once
DShare price becomes fixed
Answer & Solution
Correct answer: B. Fixed interest must always be paid
Interest is owed even when operating income is low, which can lead to default.
Keep practising Capital Structure Basics
Browse all Capital Structure Basics questions for CA Inter, or explore more Financial Management topics.
Related questions
Pecking order theory says firms first prefer to finance investments withMiller said that, if trade-off theory held, firms ought to carryFrank and Goyal found the pecking order fails mainly for which firms?In which year was Modigliani awarded the Nobel Prize in Economics?MM's operational justification of irrelevance relies onUnder MM without taxes, unlevered Firm U and levered Firm L havePerpetual after-tax income of 144 at an 8% rate gives a firm value of?A 1,000 investment returns 1,100 and income is taxed at 20%. After-tax return?