The cost of debt is Blank______. Multiple choice question. the opportunity cost lost by a firm's long-term creditors when investing on the firm the return that a firm's equity investors require on their investment in the firm the return that a firm's long-term creditors demand on new borrowing the opportunity cost of the credit given by the short-term creditors

Debt capacity is a firm’s ability to borrow to increase firm value. True or False

Select all that are true with respect to the cost of debt. Group of answer choices it is the return the firm needs to earn overall to satisfy all investors It is the rate the debt holders demand given the risk they face as debt holders Can be estimated using CAPM Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity Is always equal to the YTM on a company's existing bonds Is lower than the YTM on a company's existing debt if there is default risk Can be proxied by the YTM on a company's existing debt if the debt is risk free       Flag question: Question 7

In general, debt financing is _______  than equity financing. A firm’s ______ has priority in claiming the company’s assets.   Question 17 options:   1)  less costly, shareholders   2)  less costly, lender   3)  more costly, shareholders   4)  more costly, lender

Answer the first question

Financing with Debt Versus Equity. It is commonly understood that the cost of financing a business’sasset purchases with debt is cheaper than financing those purchases with equity. Discuss why debt financing is cheaper than equity financing. Is there a set of circumstances when the cost of debt financing would exceed the cost of equity financing? If so, when?

Given that a firm is well within its current ratio and debt ratio covenants and that interest rates are expected to decrease, would the firm prefer to use short or long-term financing for its external needs and why?

Why do analysts need to consider different factors when evaluating a company’s ability to repay short-term versus long-term debt?

Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets

Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.