Question

You are offered jobs with identical responsibilities by two different firms in the same industry. One...

You are offered jobs with identical responsibilities by two different firms in the same industry. One has no debt in its capital structure, and the other has 99 percent debt in its capital structure. Will you require a higher level of compensation from one firm than from the other? If so, which firm will have to pay you more?

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Answer #1

The firm carrying a huge amount of debt in it's capital structure that is 99% , is following an aggressive approach. Looking into the fact that the capital structure of this firm is financed 99% by outside funds that is debt , it is a very risky firm and can be subjected to liquidation/bankruptcy if the owners are not able to repay the debt owed. So, the firm has to pay a higher compensation to it's employees due to the uncertainty of working in such a risky organisation. As any time there are at a risk of losing their job and their career.

Hence, the firm carrying 99% debt has to pay me more.

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