D07Q5 – Debt financing

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June 5, 2010 at 1:01 pm #44431
zigot14
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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
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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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