Other Things Equal, a Firm That Must Obtain Its Long-Term

question 72

Multiple Choice

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a:

• A) relatively low cost of capital.
• B) relatively high cost of capital.
• C) relatively average cost of capital.
• D) cost of capital that we cannot estimate from this question.

---

Definitions:

Debt/Equity Ratio

This ratio demonstrates the equity to debt proportion in the context of financing company assets.

Market Risk Premium

The additional return expected by investors for taking on the higher risk of investing in the stock market over a risk-free asset.