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

question 48

True/False

The cost of debt, rd, is always less than rs, so rd(1 − T) will certainly be less than rs.Therefore, since a firm cannot be 100% debt financed, the weighted average cost of capital will always be greater than rd(1 − T).

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Definitions:

Buildings

Physical structures owned by a business that are used for operational purposes, considered long-term assets on the balance sheet.

Other Income/Expense

Revenue or costs that are not related to a company's main business operations, such as gains or losses from investments or foreign exchange.

Loss

A financial term referring to the condition where expenses exceed revenues, leading to a negative income.

Impaired Goodwill

A condition where the value of goodwill, often related to acquisitions, diminishes due to factors such as deteriorated brand reputation or market position.