You recently posted this answer (High degree of combined leverage), to the following question:
A conservative financing plan involves:
Are you sure the answer is not, heavy reliance on equity?
Yes, I am sure that the answer is not "heavy reliance on equity" for a conservative financing plan.
To verify the answer, we can break down the question and the options provided. The question is asking for a description of a conservative financing plan, which means a cautious or low-risk approach to financing. The option "heavy reliance on equity" suggests that a conservative financing plan would primarily use equity financing, which involves raising capital by selling shares of ownership in the company.
However, a conservative financing plan typically involves minimizing the use of debt and maintaining a lower level of financial risk. This means that equity financing, which involves giving up ownership control, may not align with a conservative approach. Instead, a conservative financing plan focuses on minimizing the reliance on external financing altogether, whether that be debt or equity, and emphasizes saving, cash management, and internal sources of capital.
Therefore, the most appropriate answer for a conservative financing plan is a high degree of combined leverage. Combined leverage refers to the use of both equity and debt financing, but with a prudent financial structure that balances both and focuses on minimizing risk. By having a mix of equity and debt, a company can optimize its capital structure while still maintaining a conservative approach.