An Implicit Cost of Adding Debt to the Capital Structure

question 3

Multiple Choice

An implicit cost of adding debt to the capital structure is that it:

• A)Adds interest expense to the operating statement
• B)Increases the required return on equity
• C)Reduces the expected return on assets
• D)Decreases the firm's beta

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Definitions:

Argument By Analogy

A form of argument that asserts a conclusion based on a comparison between two similar cases or scenarios.

Similar

Having a resemblance in appearance, character, or quantity, without being identical.

Alike

Similar in nature, appearance, or characteristics; having resemblance or common features.

Inductive Generalization

An inferential method where extensive conclusions are drawn from particular instances.