An Implicit Cost of Adding Debt to the Capital Structure

question 93

Multiple Choice

An implicit cost of adding debt to the capital structure is that it:

• A) adds interest expense to the operating statement.
• B) increases the required return on equity.
• C) reduces the expected return on assets.
• D) decreases the firm's beta.

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Definitions:

Free Play Time

Unstructured and voluntary play that allows individuals, especially children, to engage in activities of their own choosing.

Contra-liability Account

An account on the balance sheet that reduces the total amount of liabilities, working opposite to the way most liabilities function.

Mortgage Payable

A liability account on the balance sheet representing the borrower's obligation to repay a loan used to purchase property.

Beginning Inventory

The value of a company’s inventory at the start of an accounting period, before any purchases or sales have occurred.