Debt Financing Is Made Up of Explicit and Implicit Costs

question 48

Multiple Choice

Debt financing is made up of explicit and implicit costs which are:

• A)a higher required ROE and the interest rate bondholders demand, respectively.
• B)the interest rate bondholder's demand and a higher required ROE, respectively.
• C)the costs of equity and debt, respectively.
• D)the costs of issuing bonds and the interest rate bondholders demand, respectively.

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Definitions:

Product Price

The amount of money required to purchase a good or service, determined by factors such as cost of production, market demand, and competition.

Imperfectly Competitive

Characterizes markets where individual sellers can influence prices and products, unlike in perfectly competitive markets.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource.