Which of the following statements regarding non-financial liabilites is true?

Question

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Non-financial liabilities refer to obligations that are not related to debt or equity, such as operating lease obligations or pension liabilities. The proportion of non-financial liabilities in a firm's capital structure can affect its cost of capital, as these liabilities may have different risk and return characteristics than debt or equity. However, if arbitrageurs can easily undo any suboptimal choices in the firm's capital structure, then the cost of capital is not affected by the proportion of non-financial liabilities. The CAPM is not an effective tool for determining the cost of non-financial liabilities, as it is based on the assumption that investors hold diversified portfolios consisting of only financial assets. Option B is the only true statement regarding non-financial liabilities. The proportion of non-financial debt, financial debt, and equity financing can have an impact on a firm's cost of capital, but if arbitrageurs can easily intervene and adjust the firm's financing choices, then the impact will be minimal. The CAPM is not an effective tool for determining the cost of non-financial liabilities as it is only applicable to financial assets. Option A is incorrect as the linkage between a firm's projects and its claims structure does impact the cost of capital.

Which of the Following Statements Regarding Non-Financial Liabilites Is True