Which of the Following Is NOT True About Debt Financing

question 14

Multiple Choice

Which of the following is NOT true about debt financing and the weighted average cost of capital?

• A) Debt is usually the cheapest source of financing.
• B) As the level of debt increases beyond the optimum capital structure, the cost of capital increases.
• C) No debt in the firm's capital structure will minimize the firm's weighted average cost of capital.
• D) None of these options are false.

---

Definitions:

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its interest obligations from its operating income.

Bonds Payable

Long-term liabilities representing money owed by a company to bondholders, to be repaid at a future date.

Tax Rate

The percentage at which an individual or corporation is taxed.

Installment Note Payable

A liability that represents a loan that is repaid in regular payments over a set period of time.