Why would a company choose to issue stock over debt?
Answer
Reasons: (1) Already highly levered — adding debt would breach covenants or push the cap structure to dangerous levels; (2) Stock is overvalued — selling 'expensive' currency is cheap financing; (3) Strategic flexibility — preserving debt capacity for future acquisitions; (4) Lower fixed obligations — equity doesn't require interest payments or maturity refinancing; (5) Credit rating preservation — keeping investment grade matters more than EPS dilution; (6) The use of proceeds is risky and equity-like (R&D, early-stage expansion).
Why interviewers ask this
Equity is more expensive (cost of equity > after-tax cost of debt), but it doesn't carry mandatory payments or maturity risk. Common framework: use debt for cash-flow-generative purposes, equity for growth or risky bets.