Series 79 practice questioneasyEquity Issuance
A company issues new equity to retire $10 million of outstanding debt. Which of the following is the most likely immediate result?
- AIncrease in the company’s interest expense
- BReduction in financial risk and leverage✓ Correct answer
- CIncrease in financial leverage
- DDecrease in the number of shares outstanding
Explanation
Why B — Reduction in financial risk and leverage
Issuing equity to pay off debt reduces leverage and financial risk. Interest expense and leverage decrease, while the number of shares outstanding increases, not decreases.
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