Question

Companies have the opportunity to use varying amounts of different sources of financing to acquire their assets, including internal and external sources, and debt (borrowed) and equity funds. Company A uses long-term debt to finance its assets, and company B uses capital generated from shareholders to finance its assets. Which company would be considered a financially leveraged firm

Answer 1

Answer:

The correct answer is the first option: Company A.

Explanation:

To begin with, the concept known as financially leveraged firm will be applicate to those companies who decide to take the majority of its assets financed by debt arrangement so that means that the Company A is the one who is considered to be financially leveraged firm due to the fact that it says that it is that company who uses a long term debt to finance its assets and that accords to the theory. Most of the firms who take this action is because they are not able to raise enough capital by issuing shares in the market.