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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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Kinds of Capital Market
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