I did a search and got multiple answers, so just wanted to clarify.
Q)To finance a company, would you use debt or equity?
A) It depends on the situation, generally debt because it is less expensive (ie tax deductible), and you will get a higher ROI.
Valid answer?
Thanks.
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That answer is valid... definitely want to keep it in "well, it depends" territory. If I were you answering that question, I'd be sure to elaborate more about the effects of equity versus debt and potentially expand into talking about different solutions for different industries/companies.
Maybe bring in a live example to hit a home run? Talk about Facebook's recent push for more equity investment and why that might make sense for them rather than trying to raise debt. Definitely don't get too specific though, the point on these type of questions is to show them you understand the jargon and basic flow of capital structure without sounding like a parrot
This is a good point. To the OP, definitely keep the "it depends" qualifier. If you say, "Debt because it is cheaper," your interviewer will definitely take it as an opportunity to jump on you. What if, debt is too risky because cash flows are uncertain as Dibbs mentioned. Equity can in cases be safer, so it's best not to take an absolute approach. Your answer is fine, but if you tack on a real world example as mentioned above, you can take your answer to the next level and you will be in good shape.
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