Debt Financing Is Made Up of Explicit and Implicit Costs

question 76

Multiple Choice

Debt financing is made up of explicit and implicit costs that refer to:

• A) a higher required ROE and the interest rate bondholders demand, respectively.
• B) the interest rate bondholders 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.

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Definitions:

Economic Events

Events that have a financial impact on the business and are recorded in the accounting systems.

Financial Statements

Reports that systematically present the financial status and performance of an organization over a specific period.

Financial Flexibility

The ability of a company to adapt its financial policies and make decisions to ensure survival and growth.

Issuing Stock

This refers to the process by which a company sells new shares to investors in order to raise capital.