An established company that is generating cash flow has the opportunity for more flexibility in the firm's capital structure. Specifically, the use of financial debt for some of their funding needs. Management must assess how much debt financing and how much equity financing the company requires for its capital projects and working capital needs, while also considering how much debt the company can reasonably service in both good and bad times. Which of the following statements is (are) true? A. Financial risk is added to operating risk to arrive at the total risk exposure of the common shareholders. B. Financing with debt and preferred stock creates more financing risk as these financial instruments are contractual obligations to make periodic payments of interest and principle. C. Debt financing is considered less expensive than equity financing because of the lower return expectations of debt investors (relative to equity investor's) the tax deductibility of interest payments, as well as the lower fees and other expenses (floatation costs) of raising debt versus equity in the capital markets. D. Answers A. and B. E. Answers A, B and C. An established company that is generating cash flow has the opportunity for more flexibility in the firm's capital structure. Specifically, the use of financial debt for some of their funding needs. Management must assess how much debt financing and how much equity financing the company requires for its capital projects and working capital needs, while also considering how much debt the company can reasonably service in both good and bad times. Which of the following statements is (are) true? A. Financial risk is added to operating risk to arrive at the total risk exposure of the common shareholders. B. Financing with debt and preferred stock creates more financing risk as these financial instruments are contractual obligations to make periodic payments of interest and principle. C. Debt financing is considered less expensive than equity financing because of the lower return expectations of debt investors (relative to equity investor's) the tax deductibility of interest payments, as well as the lower fees and other expenses (floatation costs) of raising debt versus equity in the capital markets. D. Answers A. and B. E. Answers A, B and C