When a borrower's net worth is high,
A)the cost of its internal funds will be high.
B)the cost of its internal funds will be low.
C)the cost of its external funds will be high.
D)information costs are less likely to constrain capital spending.

Question

Quizplus · Accepted Answer

When a borrower's net worth is high, information costs related to borrowing are lower because lenders perceive the borrower as less risky. This reduces the constraints on capital spending due to lower perceived risk.

When a Borrower's Net Worth Is High