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D07Q5 – Debt financing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › D07Q5 – Debt financing

  • This topic has 1 reply, 2 voices, and was last updated 15 years ago by John Moffat.
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  • June 5, 2010 at 1:01 pm #44431
    zigot14
    Member
    • Topics: 6
    • Replies: 22
    • ☆

    In D07Q5 part c,

    The last paragraph of the suggested answer states that:
    “from a transaction costs perspective, debt tends to be preferred for the acquisition of general assets with high marketability and equity for intangibles and highly specific assets.”

    Why is that so?

    Thanks.

    June 6, 2010 at 9:29 am #62120
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54674
    • ☆☆☆☆☆

    Its really because of security – if debt is used to finance assets that are easily marketable then there is less risk for the lender and therefore they are likely to require lower interest than if they are financing less marketable assets

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