Question

Explain the following as factors affecting ’Financing Decision’:
(b) Fixed operating costs

(ii) Cash flow position of the company

Hint:

Financing decisions based on cash flow

Answer 1

Elevated fixed operating costs heighten financial risk, potentially impeding the fulfillment of financial commitments. Conversely, reduced fixed operating costs might necessitate greater reliance on debt financing. Cash Flow Dynamics: Robust cash flow supports debt financing, whereas diminished cash flow may compel a company to opt for equity financing to circumvent fixed repayment schedules.