Although Debt Financing Is Usually the Cheapest Component of Capital,it

question 142

Multiple Choice

Although debt financing is usually the cheapest component of capital,it cannot be used to excess because:

• A) interest rates may change.
• B) the firm's share price will increase and raise the cost of equity financing.
• C) the financial risk of the firm may increase and thus drive up the cost of all sources of financing.
• D) underwriting costs may change.

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Definitions:

Stop Payment Order

A stop payment order is a request made to a bank or financial institution to cancel a check or payment before it is processed or cashed.

Holder In Due Course

A party possessing a negotiable instrument, such as a check or promissory note, who has certain rights to payment and is protected against some defenses if the instrument was acquired in good faith.

Authorized Representative

An individual or entity legally empowered to act on behalf of another person or organization.

Legal Entity

A legal entity refers to any company or organization that has legal rights and obligations, including the capacity to enter into contracts and loans, sue and be sued.