Debt Financing Is Made Up of Explicit and Implicit Costs

question 59

Multiple Choice

Debt financing is made up of explicit and implicit costs which are:

• A)A higher required ROE and the interest rate bondholders demand, respectively
• B)The interest rate bondholder's demand and a higher required ROE, respectively
• C)The costs of equity and debt, respectively
• D)The costs of issuing bonds and the interest rate bondholders demand, respectively

---

Definitions:

Cash Inflows

Money received by a business from various sources including sales, investments, and financing.

Useful Life

The estimated period over which an asset is expected to be used by the entity, or be productive.

Salvage Value

The projected sell-on value of an asset upon reaching the end of its operational lifespan.

Useful Life

The estimated duration of time over which an asset is expected to be functional and generate revenue for its owner.