Which of the following should be considered a cost of debt?

Question

Quizplus · Accepted Answer

Deadweight costs and underinvestment are both costs associated with taking on debt. Deadweight costs refer to the costs incurred by the firm due to financial distress caused by excessive debt, while underinvestment refers to the potential loss of valuable investment opportunities due to the cost of servicing debt. Therefore, both A and B should be considered costs of debt. Stakeholder holdup costs are not directly related to the costs of debt.

Which of the Following Should Be Considered a Cost of Debt