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

---

Definitions:

Social Preferences

Individuals' preferences that are not solely based on their own self-interest but include concerns for the welfare of others in their decisions.

Aggregating

The process of combining multiple individual items, values, or data points into a single summary figure or total.

Individual Preferences

Refers to the unique tastes and priorities that dictate the choice of goods and services by an individual, influencing consumer behavior.

Percent Confident

A statistical measure that quantifies the level of confidence in the likelihood of an event or outcome.