Why Do Investors Typically Accept a Lower Risk-Adjusted Rate of Return

question 50

Essay

Why do investors typically accept a lower risk-adjusted rate of return on debt capital than equity capital? Suppose a stable,financially healthy,profitable,tax-paying firm that has been
financed with all equity and no debt decides to add a reasonable amount of debt to its capital
structure.What effect will that change in capital structure likely have on the firm's
weighted average cost of capital?

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Definitions:

Humanist

A person who focuses on the value and agency of human beings, emphasizing reason, ethics, and justice.

Atheist

A person who does not believe in the existence of God or any gods.

Deist

A person who believes in deism, the philosophical belief in the existence of a supreme being who does not intervene in the universe.

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