Which of the following statements about transaction costs is true?

Question

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Firms with lower credit ratings are seen as more risky and therefore may have a harder time finding lenders willing to lend to them. As a result, they may face higher transaction costs associated with obtaining financing, such as higher fees or interest rates. The other statements are false. Smaller firms may not be 100% equity financed despite low transaction costs, as they may still prefer to use some debt financing. Transaction costs cannot be ignored when making capital structure decisions as they can have a significant impact on the overall cost of financing. Lastly, transaction costs do not necessarily cause debt financing to always be favored over equity financing as each option may have its own advantages and disadvantages in different situations. Firms with lower credit ratings may face higher transaction costs than firms with good credit ratings because lenders may require more extensive due diligence on the firm's financial position before lending. This can increase the costs and time associated with obtaining debt financing, leading some firms to opt for equity financing instead. The other statements are not true.

Which of the Following Statements About Transaction Costs Is True