Although Debt Financing Is Generally Cheaper Than Equity Financing, Financial

question 16

True/False

Although debt financing is generally cheaper than equity financing, financial managers should not use debt financing significantly above the industry standard because it can increase the firm's overall cost of capital.

---

Definitions:

Wage Rates

The amount of money paid to employees for their labor, usually expressed on an hourly, daily, or piecework basis.

Cyclical

Referring to fluctuations in economic activity that occur in cycles, often related to changes in business conditions.

Defense Contractor

A business organization that provides products or services to a military or national security department of a government.

Recession

A temporary economic slump, associated with a drop in business and manufacturing activities, commonly distinguished by a successive decline in GDP across two quarters.