Understanding the impact of debt in the capital structure Suppose you are conducting a workshop on capital structure decisions and you want to highlight certain key issues related to capital structure. Your assistant has made a list of points for your session, but he thinks he might have made some mistakes. Review the list and identify which items are correct. Check all that apply. Workshop Talking Points An increase in debt financing beyond a certain point is likely to increase the firm's cost of equity. An increase in debt financing decreases the risk of bankruptcy. An increase in the risk of bankruptcy is likely to reduce a firm's free cash flows in the future. Risks of bankruptcy increase management spending on perquisites and increase agency costs. The pretax cost of debt increases as a firm's risk of bankruptcy increases.

Understanding the impact of debt in the capital structure Suppose you are conducting a workshop on capital structure decisions and you want to highlight certain key issues related to capital structure. Your assistant has made a list of points for your session, but he thinks he might have made some mistakes. Review the list and identify which items are correct. Check all that apply. Workshop Talking Points An increase in debt financing beyond a certain point is likely to increase the firm's cost of equity. An increase in debt financing decreases the risk of bankruptcy. An increase in the risk of bankruptcy is likely to reduce a firm's free cash flows in the future. Risks of bankruptcy increase management spending on perquisites and increase agency costs. The pretax cost of debt increases as a firm's risk of bankruptcy increases.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter13: Capital Structure And Leverage

Section: Chapter Questions

Problem 14SP: WACC AND OPTIMAL CAPITAL STRUCTURE Elliott Athletics is trying to determine its optimal capital...

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