Does the risk of bankruptcy represent a disadvantage to using debt? Research and discuss a bankruptcy case of a firm that can overcome its difficult situation.
Does the risk of bankruptcy represent a disadvantage to using debt?
Yes, the risk of bankruptcy represents a serious disadvantage to using a debt. In case of equity financing the risk of bankruptcy is not there. Further, the risk of bankruptcy arising from not being able to make interest and principal payments represents the financial risk of debt financing. If a firm is not able to make interest payment or is not able to repay the principal amount in time, the ...
risk of bankruptcy is discussed in great detail in this solution.