There Are Two Costs of Debt Finance

question 93

True/False

There are two costs of debt finance.The explicit cost of debt is the rate of interest that bondholders demand.But there is also an implicit cost, because borrowing decreases the required rate of return to equity.

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Definitions:

Charging Order

A court order directing that the debts owed to a debtor by a third party be redirected to pay a creditor, often used to satisfy a judgment.

Negligence Lawsuit

A legal claim filed against an individual or entity for causing harm through careless or reckless behavior, failing to act as a reasonably prudent person would have.

Judgment

A formal decision or order given by a court following a legal proceeding.

Partnership Profits

The earnings generated from a business operation that are shared among partners according to the terms of their partnership agreement.