There Are Two Costs of Debt Finance

question 80

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 overborrowing increases the required rate of return to equity.

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Definitions:

Buyer Power

The influence that consumers have on the pricing and availability of goods and services in a market.

Loyalty Programs

Marketing strategies designed by businesses to encourage repeat customers by offering rewards, discounts, or other incentives.

Globalization

The process by which businesses or other organizations develop international influence or start operating on an international scale, often associated with cultural and economic integration.

Competitive Forces

Elements in the external environment that influence an organization's competitive position, including competition, customer power, supplier power, the threat of new entrants, and the threat of substitute products or services.