The relative inexpensive nature of debt capital is due to the fact that the lenders take the least risk of any long-term contributors of capital.

Question

Quizplus · Accepted Answer

Debt providers have a higher priority claim on assets, and therefore take less risk than equity holders. This lower risk results in lower required rates of return and, subsequently, lower costs of capital for companies who utilize debt financing.

The Relative Inexpensive Nature of Debt Capital Is Due to the Fact