Which of the Following Is NOT True About Debt Financing

question 14

Multiple Choice

Which of the following is NOT true about debt financing and the weighted average cost of capital?

• A) Debt is usually the cheapest source of financing.
• B) As the level of debt increases beyond the optimum capital structure, the cost of capital increases.
• C) No debt in the firm's capital structure will minimize the firm's weighted average cost of capital.
• D) None of these options are false.

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Definitions:

Marginal Social Benefit

The additional benefit to society as a whole from producing or consuming one more unit of a good.

Public Good

A product or service that is provided without profit to all members of a society, either by the government or a private individual or organization, characterized by non-excludability and non-rivalry.

Marginal Social Cost

The total cost to society of producing an additional unit of a good or service.

Public Good

A good that is non-excludable and non-rivalrous, meaning no one can be effectively excluded from its use, and someone's use of it does not reduce its availability to others.