Why might a company choose to issue equity instead of debt?

• A. To inflate stock prices
• B. To maintain immediate cash flows
• C. To adjust the capital structure
• D. All of the above

Answer: (D)

When a company chooses to issue equity instead of debt, it often encompasses a variety of strategic considerations that can include all the mentioned factors.

Issuing equity can inflate stock prices by providing an influx of capital that potentially enhances the company's growth prospects or financial health. This influx can be interpreted favorably by investors, leading to an uptick in the stock price.

Maintaining immediate cash flows is another important reason for opting for equity as it does not involve the regular interest payments associated with debt financing. By raising capital through equity, a company can secure necessary funds without the immediate obligation to pay back a loan with interest, which can alleviate cash flow pressures.

Adjusting the capital structure is also a significant factor. Companies may choose to issue equity to optimize their debt-to-equity ratio. A more balanced capital structure can make a company less risky in the eyes of investors and creditors, thereby leading to a potentially lower cost of capital in the long term.

Thus, all of these aspects can influence a company’s decision to issue equity over debt, making it not just a single strategic move but a multifaceted approach to financial management.