Question 5 15 pts Which one of the following statements is true? Increased debt amplifies coverage ratios Usually, debt financing in associated with higher cost of capital relative to equity financing Retained earnings is the best source of capital because it has no cost When a company is in financial distress, its shareholders may have an incentive to undertake excessively risky investments Question 7 15 pts Based to the pecking order theory, which one of the following statements is true? There is no relationship between a firm's profit level and its debt level Only forms will outstanding profitability should consider issuing equity to obtain capital. To satisfy funding needs, forms should first use their internal funds, then issue debt, and lastly issue equity There exists an optimal debt ratio that firms should try to reach Previous