Although Debt Financing Is Usually the Cheapest Component of Capital

question 75

Multiple Choice

Although debt financing is usually the cheapest component of capital, it cannot be used in excess because

• A) interest rates may change.
• B) the firm's stock price will increase and raise the cost of equity financing.
• C) the financial risk of the firm may increase and thus drive up the cost of all sources of financing.
• D) underwriting costs may change.

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Definitions:

Sherman Act

is a foundational antitrust law in the United States aimed at preserving competition by prohibiting monopolies, cartels, and other forms of anticompetitive practices.

Restraint Of Trade

Legal doctrine that restricts the ability for parties to freely conduct business, often related to antitrust issues and competition law.

Tying Contract

A sales agreement that requires the buyer to purchase another product or service, distinct from the product or service of interest.

Federal Trade Commission Act

A United States law established in 1914 to promote consumer protection and eliminate and prevent anticompetitive business practices.