The Cost of Debt, Rd, Is Normally Less Than Rs

question 70

True/False

The cost of debt, rd, is normally less than rs, so rd(1 σ T) will normally be much less than rs. Therefore, as long as the firm is not completely debt financed, the weighted average cost of capital (WACC) will normally be greater than rd(1-T).

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Definitions:

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Essential Raw Materials

Fundamental inputs necessary for the production of goods, often considered critical for a country's economy and security.

Patents

Legal rights granted by the government to inventors, giving them exclusive rights to their inventions for a certain period of time.

Inelastic Segment

A portion of the demand curve where consumers are relatively unresponsive to price changes, resulting in a steep slope.