There Are Two Costs of Debt Finance

question 80

True/False

There are two costs of debt finance.The explicit cost of debt is the rate of interest that bondholders demand.But there is also an implicit cost,because overborrowing increases the required rate of return to equity.

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Definitions:

Slope

The measure of the steepness or incline of a line, calculated as the ratio of the vertical change to the horizontal change between two points on the line.

Least Squares Regression

A statistical method used to find the line of best fit by minimizing the sum of the squares of the residuals between observed and estimated values.

Rain

Precipitation in the form of liquid water drops that have diameters greater than 0.5 millimeters.

Scatter Diagram

A graphical representation of two variables' values to observe any correlations, with individual data points plotted on a two-dimensional plane.