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The probability of bankrupt is higher

This question belongs to Commerce Financial Management
Financial Management
?

The probability of bankrupt is higher.

Answer & Solution
Correct Answer: Option A
Bankruptcy risk is directly related to a firm's financial obligations.

A levered firm uses debt in its capital structure, which means it has fixed obligations like interest payments and principal repayment.

If the firm fails to meet these obligations, it may face financial distress or even bankruptcy.

On the other hand, an unlevered firm does not use debt and therefore has no mandatory financial commitments towards creditors.

As a result, the probability of bankruptcy is higher in a levered firm compared to an unlevered firm due to the burden of fixed financial obligations.
Examveda
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1 Comment
Alone Pagal
Alone Pagal 7 months ago
A is right
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