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Which of the following statements is incorrect? -

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Question

Which of the following statements is incorrect?

Options

  • A low Debt Service Coverage Ratio indicates better ability to meet cash commitments and consequently, the company's potential to increase debt component in its capital structure.

  • Use of higher debt increases the cost of equity.

  • Low interest rates increase a firm's capacity to employ higher debt.

  • None of the above

MCQ

Solution

A low Debt Service Coverage Ratio indicates better ability to meet cash commitments and consequently, the company's potential to increase debt component in its capital structure.

Explanation - 

A greater DSCR reflects a company's ability to meet financial commitments and, as a result, its ability to raise the debt component of its capital structure.

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