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.

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UGC NET Paper 2: Management 20th Dec 2018 Shift 2
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  1. Statement I is correct, but II is incorrect.
  2. Statement II is correct, but I is incorrect.
  3. Both the statements I and II are correct.
  4. Both the statements I and II are incorrect.

Answer (Detailed Solution Below)

Option 2 : Statement II is correct, but I is incorrect.
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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50 Questions 100 Marks 60 Mins

Detailed Solution

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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

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