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Homework answers / question archive / Under the trade off theory, how will a government loan guarantee impact financing? A

Under the trade off theory, how will a government loan guarantee impact financing? A

Business

Under the trade off theory, how will a government loan guarantee impact financing?

A. Prefer to issue debt

B. Prefer to issue stock

C. Prefer internal money

D. No impact

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The answer is A. Prefer to issue. A government loan guarantee would make a firm's debt issue less risky to the public. As a result, they'd be willing to accept a much lower rate of interest, which means inexpensive financing for the company. All things considered, the economic trade-off favors debt financing over equity financing.

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