Which of the Following Is NOT a Cost to the Firm

question 50

Multiple Choice

Which of the following is NOT a cost to the firm of increasing debt financing?

• A)investors will demand a higher interest rate on debt.
• B)the risk to common stockholders increases.
• C)stockholders will demand a higher return.
• D)the cost of common equity will decrease.

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Definitions:

Common Stock

A form of corporate equity ownership, representing a claim on a portion of a company’s profits and assets.

Par Value

Par value is the nominal or face value of a bond, stock, or other security, as stated by the issuing company in its charter.

Treasury Stock

Shares that were issued and subsequently reacquired by the issuer, not considered when calculating earnings per share or dividends.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to shareholders, often reinvested in the business.