As a firm uses excessive amounts of debt financing,
1) its debt ratio increases
2) the value of its stock declines
3) its cost of capital increases

Name: As a firm uses excessive amounts of debt financing, 1) its debt ratio increases 2) the value of its stock declines 3) its cost of capital increases
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Question

As a firm uses excessive amounts of debt financing,
​1) its debt ratio increases
2) the value of its stock declines
3) its cost of capital increases

Quizplus · Accepted Answer

Excessive debt increases the debt ratio, can lead to a decline in stock value due to perceived risk, and raises the cost of capital as lenders demand higher returns for increased risk.

As a Firm Uses Excessive Amounts of Debt Financing