If a Firm Must Issue Subordinated Debentures Instead of Equipment

question 39

True/False

If a firm must issue subordinated debentures instead of equipment trust certificates, the marginal cost of capital may rise even though the optimal capital structure is maintained.

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Definitions:

Unusual Item

A nonrecurring or rare event that impacts a company's financial statements, not related to the ordinary activities of the business.

Income Statement

A financial report summarizing the revenues, expenses, and profits over a specified period, usually a fiscal quarter or year.

Disposal of a Segment

The process of eliminating a division, department, or segment of a business through sale, closure, or bankruptcy, impacting financial statements.

Accounting Principle

Guidelines and rules that govern the accounting process, ensuring accuracy and consistency in financial reporting.