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:

Contractual Obligations

The specific duties, actions, or tasks that parties must perform as outlined in a contract.

Disaffirm

the legal right, often associated with minors, to renounce or void a contract or agreement, under certain conditions, to protect from exploitation or unfair terms.

Reasonable Value

The fair or moderate worth of goods, services, or property in usual market conditions.

Lifestyle Clothing Store

A lifestyle clothing store sells apparel and accessories focusing on specific cultural or activity-based lifestyles, often embodying particular fashions, values, or preferences of a niche market.