For Most Firms, the Cost of Capital Decreases to a Low

question 57

Multiple Choice

For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________.

• A) decreases; increases
• B) decreases; decreases
• C) increases; increases
• D) increases; decreases

Understand the concept and importance of cash budgeting in financial planning.

Recognize the impact of short-term financial policies on a firm's liquidity and operations.

Identify factors affecting the optimal level of current assets and short-term financial strategies.

Understand how taxes, wages, capital equipment, and inventory purchases are treated in cash budgeting.