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#5 True or False? The issuance of equity for a firm with various financing alternatives signals...

#5 True or False? The issuance of equity for a firm with various financing alternatives signals that the firm has unfavorable prospects which it wants to share with new shareholders according to the signaling theory of capital structure.

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Answer #1

Answer :- False

As per signalling theory of capital structure firm must use equity for their capital after then raise debt if it is not possible to raise equity on a reasonable terms because use of debts by the company signals to the investors that the future doesn't signals good for the company.

As there are two sources of finance and using the fund of its equity shareholders is always a cheaper and better source of finance in comparison to other alternatives of financing.

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