Question

Review each of the following statements to determine which is correct regarding the importance of assessing a company's risk of paying debt.
a) A company that finances their assets by borrowing will need to make enough money to pay off the debt.
b) Assessing a company's risk of paying off debt is not required when the company is highly leveraged.
c) If a company has a lot of debt, they may not be able to afford to take on new debt.
d) A company's required debt payments may be greater than its ability to generate money to make those payments.

Answer 1

The correct statement regarding the importance of assessing a company's risk of paying debt is when a company finances their assets through borrowing and will need to make enough money to pay off the debt.

Financial Risk is defined as the possibility of making a loss or a gain on a particular investment.

As a result of this, it is important that a company makes a good risk assessment to find out if there is a good chance of paying off a debt.

The importance of this is to make sure that there is enough money to settle the debts through income.

Therefore, the correct answer is option A

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