Question
The weighted average cost of capital rises at higher levels of debt owing to Blank______.
Multiple choice question.
excess free cash flow
higher working capital
higher dividend costs
financial distress costs
Multiple choice question.
excess free cash flow
higher working capital
higher dividend costs
financial distress costs
Answers
GPT-4o mini
The correct answer is **financial distress costs**.
As a company takes on more debt, the risks associated with financial distress increase, which can lead to higher costs of capital. This is because investors may require a higher return to compensate for the increased risk of potential bankruptcy or financial difficulties.
As a company takes on more debt, the risks associated with financial distress increase, which can lead to higher costs of capital. This is because investors may require a higher return to compensate for the increased risk of potential bankruptcy or financial difficulties.