Answered: How can we determine the Cost of Debt?

Business

Economics

How can we determine the Cost of Debt?

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter4: Going Into Debt

Section4.1: Americans And Credit

Problem 2R

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Question

How can we determine the Cost of Debt?

Expert Solution

Step 1

The cost of debt calculation is useful in determining the average rate a business is paying for using these forms of debt financing. The measure may also give investors an indication of the company's level of risk relative to others, because riskier companies typically have higher debt costs.

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