Answered: While the use of debt can lower the…

While the use of debt can lower the average cost of capital, there is a point that the debt leverage gets high enough it increases the cost of capital.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 1GI

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While the use of debt can lower the average cost of capital, there is a point that the debt leverage gets high enough it increases the cost of capital.

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