Choose the correct code for the following statements being correct or incorrect.

Statement I: Companies generally do not prefer low cost debt financing.

Statement II : Raising debts requires credit rating and payment of interest even if companies suffer losses.

Question

Question

This question was previously asked in

UGC NET Paper 2: Management 20th Dec 2018 Shift 2

Answer 1

The correct option is Statement II is correct, but I is incorrect

Key Points

Statement one states that the company generally do not prefer low-cost debt finance but actually scenario the company will prefer low-cost debt financing because it allows them to procure fund at a lower cost rate than equity financing
The statement is absolutely correct that raising debt financing requires companies to maintain good credit ratings, as we know that lenders assess the creditworthiness of an individual or organization before granting a loan, and periodical interest payment should be done without fail.

Hence the correct answer is Statement II is correct, but I is incorrect